Common Market for Eastern and Southern Africa (COMESA)
- Origin and Background
- Key Elements and Procedures
- Impact on Member States
- Relation with External Actors
The Common Market for Eastern and Southern Africa (COMESA) is a regional trade organization consisting of 20 African states in the eastern and southern regions of Africa and a small number of countries in central and northern Africa. In 2007 its membership included Angola, Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya (since June 2005), Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe. Its objective is to strengthen the institutions of member states tohelp themachieve collective and sustained development.
Origin and Background
COMESA, also known simply as the commonmarket, traces its origin to the pan-African vision of economic integration of the African continent that gained prominence between the late 1950s and early 1960s. The consensus then was that the smallness and fragmentation of postcolonial African nationalmarkets would constitute a major obstacle to the development of the continent. Accordingly, it was agreed that the newly independent African states should promote economic cooperation among themselves. In the mid-1960s, the countries of eastern and southern Africa initiated the process toward the formation of an eastern and southern African cooperation arrangement.After the preparatory work had been finalized, the Preferential Trade Area (PTA) Treaty was signed in 1981 and ratified in 1982, giving birth to the Eastern and Southern African PTA.
Common Market for Eastern and Southern Africa was created by treaty in 1994 to replace the PTA. Its formation was a fulfillment of the requirements of the PTA Treaty, which provided for the transformation of the PTA into a common market. The common market was intended to strengthen the progress of regional integration that had begun under the PTA. The COMESA Treaty had two notable provisions that the PTA Treaty lacked: (1) the concept of multiple speed or variable asymmetry, which allows some countries to progress faster in the regional economic integration process than other countries, and (2) the use of sanctions (financial penalty, suspension, or expulsion) to discipline member states that fail to implement Common Market for Eastern and Southern Africa programs or to settle disputes arising fromthe interpretation or implementationof the treaty.These two innovations helped to expedite the process of economic integration in the region.
The affairs of the common market are managed by a number of institutions, including those organs (the Authority ofHeads of States and Governments, the Council of Ministers, the Court of Justice, and the Committee of Governors of Central Banks) responsible for making decisions on behalf of the common market; the COMESA Trade and Development Bank, which provides capital for development; the COMESA Re-Insurance Company, which is responsible for providing insurance for trade, investment, and other productive activities, and for promoting trade in insurance and reinsurance business; the COMESA Association of Commercial Banks, which is responsible for promoting and strengthening links between banks in the region; the COMESA Clearing House, which is responsible for settling payments with respect to all transactions in commodities conducted within the common market; and the Common Market for Eastern and Southern Africa Leather Institute, which is responsible for promoting productivity, competitiveness, trade, and regional integration in the leather subsector.
Member countries of the common market are diverse in terms of socioeconomic development and resource endowments. According to 2004 data, gross domestic product (GDP) per capita ranged from as little asUS $90 for Burundi tomore thanUS $8,600 for Seychelles. The United Nations Development Program ranked only two countries (Seychelles, followed byMauritius) as high-human-development countries, six as medium-human-development countries, and 12 as low-human-development countries. The population levels range from less than a million in Comoros to more than 70 million each in Egypt and Ethiopia, with a total of 380 million people in the entire region. Resource endowments vary from agricultural products to crude oil (in Libya) to mineral ores. COMESA was intended to take advantage of the largermarket size, to share the region’s common heritage and destiny, and to allow greater social and economic cooperation with the ultimate goal of creating a regional economic community. This regional economic community would then form one of the building blocks on which the creation of the African Economic Community (AEC) would be erected, as envisaged by the Lagos Plan of Action of 1980 and the Abuja Treaty of 1991.
Key Elements and Procedures
The COMESA integration strategy comprises the following four phases: (1) the establishment of a free trade area (FTA) through the abolition of all tariff and nontariff barriers on commodities imported from member countries by 2000; (2) the establishment of a customs union with a common external tariff structure by 2004; (3) the adoptions of common investment practices and visa arrangements, and the establishment of a payments union; and (4) the establishment of a common monetary union by 2025. The FTA phase was achieved in 2000 when Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia, and Zimbabwe eliminated tariffs and nontariff barriers on goods produced in the commonmarket. Burundi and Rwanda eliminated theirs in 2004 and became FTA partners. At the end of 2007, the common market was still operating as an FTA.
The common market has five key provisions. First, there are no custom duties or charges of equivalent effect imposed on goods from one FTA member to another unless it is for protecting an infant industry or against dumping. Second, member states are allowed to impose full national tariff rates on goods from nonmember states. Third, there are no nontariff barriers against goods from one FTA member to another unless such goods are deemed to pose a health or security risk. Fourth, member states follow the Common Market for Eastern and Southern Africa rules of origin in determining whether or not a good is eligible for preferential treatment. Strict local content requirements have been established to prevent nonmember countries from establishing assembly operations in one member country in order to gain duty-free access to the common market. Fifth, member states that are not yet FTA partners but have met the 60 percent tariff reduction target are granted trade preferences by the FTApartners on the basis of the tariff reductions they have attained. For instance, countries such as Comoros, Eritrea, and Uganda that have reduced their tariff rates onproducts originating fromthe common market by at least 80 percent qualify to receive an equivalent reciprocal preferential treatment from the FTA partners. Other COMESA member states that have not implemented the 60 percent minimum tariff reduction do not get any preferential rate from the FTA partners or from those that have reduced their tariffs by at least 60 percent.
Besides market integration, the Common Market for Eastern and Southern Africa integration strategy has been expanded to include transport and communications infrastructure development. More specifically, the focus is on development and implementation of transit traffic facilitation programs; identification and coordination of regional investments in the transportation, communications, and energy sectors; and the promotion and coordination of institutional and policy reforms in the transportation, telecommunication, postal, energy, and environment sectors.
Impact on Member States
Economists separate the welfare effects of a regional economic integration into static and dynamic effects. Static effects are short-run effects that relate to productive efficiency and consumer welfare. Static effects are further delineated into trade creation and trade diversion effects, a` la Jacob Viner (1950). Trade creation is associated with increase in trade amongmember states of a regional organization owing to the reduction in tariff and nontariff barriers. Trade diversion occurs when trade with nonmember countries declines as a result of the formation of a regional organization. A regional economic arrangement is welfare-increasing if the trade creation effectsmore than compensate for the trade diversion effects.
There is evidence of trade creation in the COMESA region. Trade among member countries (intra-COMESA trade) has expanded substantially since the creation of COMESA. Intra-COMESA trade increased from US $1.7 billion in 1994 to US $5.5 billion in 2003. The formation of the FTA has played a major role in facilitating this trade. More specifically, trade among the FTA partners alone increased from US $1 billion in 2000 to more than US $5 billion in 2005. JacobW.Musila (2005) investigated the static effects of the COMESA regional trade agreement and concluded that it is welfare-increasing. More specifically, Musila estimated the relative sizes of the trade diversion and trade creation effects for COMESA and found that the trade creation effects exceed the trade diversion effects.
The dynamic effects of regional economic integration relate to the long-run growth rates of the member countries due to increased efficiency as a result ofmarket enlargement. It is believed that large markets permit economies of scale to be realized on certain export goods and, therefore, may lead to specialization in particular types of goods. The net impact of the dynamic effects, like that of the static effects, is not obvious, however.Whether or not regional economic integration increases welfare in the long run depends on the scope of liberalization in member countries and the type of goods in which countries specialize. Athanasios Vamvakidis (1999) shows that growth is faster in economies that liberalize broadly than in those that merely join regional trade agreements and do not liberalize. Augustin K. Fosu (1990) finds that primary commodity exports do not have a significant impact on long-run economic growth.
For COMESA, the approach to regional integration is open regionalism that is, it liberalizes trade without crowding out the world economy. COMESA member countries specialize mainly in primary commodities, however. As a result, the trade commodity baseamongmember states is narrowand similar. The trade pattern of the common market is such that manufactured goods are imported from outside the region (mainly from rich nations) while primary commodities dominate the exports of the region. And Antonio Spilimbergo (2000) has shown that the importation ofmanufactured goodsmay not necessarily result in dynamic gains for less-developed countries (the South). The learning-by-importing models suggest, however, that imports of hightechnology goods lead to transfer of technology that stimulates domestic innovation and economic growth in the importing country.
The experience for the common market region has been a slight improvement in economic growth since the creation of COMESA in 1994.The average growth rate of real GDP per capita per annum increased from about 0.01 percent during 1980 94 to 1.35 percent during 1995 2005. It is likely that the improvement in economic growth in the common market is partly due to the trade liberalization programs implemented under the auspices the COMESA Treaty. Together, the static and dynamic effects determine the overall welfare gains or losses associated with regional economic integration. The evidence appears to suggest that there are overall welfare gains in the case of Common Market for Eastern and Southern Africa.
Relation with External Actors
COMESA and other African regional trade blocs seek to augment and deepen regional integration on the African continent with a view to creating an AEC. Accordingly, COMESA supports and has signed cooperation agreements with several other African regional undertakings such as the Intergovernmental Authority on Development and the Economic Community of West African States (ECOWAS) and allows overlapping memberships with other regional organizations. Robert Sharer (1999) has observed, however, that overlapping memberships with internal inconsistencies, conflicting regulations and rules, and different strategies and objectives work to impede market expansion and, thus, discourage domestic and foreign investment. Indeed, some of the countries with dual or more memberships, such as Namibia and Tanzania, have been reluctant to implement COMESA programs in full or have quit the common market.
Non-African regional trade blocs are often seen as impeding Africa’s regional integration. Jeffrey D. Lewis, Sherman Robinson, and Karen Thierfelder (2003) have observed that North-South trade ismore attractive to African countries than South-South trade. Indeed, a majority of the member states of COMESA trade with the European Union (EU) more than with one another. The trade with the EU and theUnited States was set to increase even further following the opening up of theEUand U.S.markets under the Everything-but-Arms and the African Growth and Opportunity Act initiatives, respectively. A 2001 WTO provision aiming at removing quotas and duties on a large number of goods originating from the world’s poorest countries also promised to increase tradewith non-African regional blocs and further reduce the advantages that the common market offers to its member states. Ironically, however, the very same processes of global trade liberalization and cooperation with non- African trade blocs have contributed to the evolution of COMESA. The EU directly encourages developing countries to form a group and speak with one voice. For the EU, dealing with a collective organization rather than with numerous individual countries reduces transaction costs. Indirectly, the success of the EU has inspired the hopes for creating the AEC, with Common Market for Eastern and Southern Africa being an intermediate step. See also customs unions; Economic Community of West African States (ECOWAS); free trade area; regionalism; rules of origin