A Look at the Simplified Trade Regimes in East and Southern Africa

5 June 2018

The East African Community (EAC) and the Common Market for East and Southern Africa (COMESA) are the two only African regional economic communities that have adopted simplified trade regimes (STR) to facilitate small-scale cross-border trade. What can be learnt from their experiences?


Regional integration efforts do acknowledge the role of informal cross-border trade (ICBT) as a contributor to socio-economic development in the wake of shrinking formal employment opportunities in this region. ICBT is a source of employment as traders support job creation both in their home countries and in the countries where they source their goods. It is also a supplementary source of family income to under‐employed people, thus helping to bridge the income gap that is characteristic of many African households.

According to a recent study published by the UN’s Food and Agriculture Organization, “ICBT refers to trade in goods/merchandise and services which may be legally imported or exported on one side of the border and illegally on the other side and vice-versa, on account of neither having been recorded in the official trade statistics nor subjected to statutory border formalities such as customs clearance.”[1]

To facilitate ICBT, member states from the East African Community (EAC) and the Common Market for East and Southern Africa (COMESA) have adopted simplified trade regimes (STRs) for small-scale cross-border traders. The aim is to make it easier to conduct small-scale cross-border trade activities by putting in place instruments and mechanisms tailored to the trading requirements of small-scale traders that are operating in border areas, where informal trade is rampant. In the Southern Africa Development Community (SADC), no simplified trade regime has been implemented yet. However, efforts are currently underway to develop such a regime for intra-SADC trade.
 

Provisions in regional trade arrangements dealing with ICBT

A number of policy instruments and protocols that are relevant to the informal trade sector exist at the regional level, in particular those regarding the promotion of trade facilitation and economic integration between countries in east and southern Africa. For example, Article 3 of the COMESA Treaty, Article 5.1 of the EAC Treaty, and Article 5.1.1 of the SADC Treaty all have an element that can relate to informal trade.

It is important, however, to note that while the provisions of the different protocols in COMESA, the EAC, or SADC may be relevant and important for informal traders, they do not seem to adequately take account of the sector because of its informality, and thus do not respond effectively to challenges faced by informal cross-border traders. In most cases, the protocols are silent on how informal traders or their associations can access the protocol in terms of being within the ambit of its provisions or whether they are considered as relevant actors in regional trade. In recognition of this, COMESA and the EAC introduced and are implementing STRs, while SADC is in the process of developing its own STR in line with its trade facilitation programme.
 

Review of the simplified trade regimes in east and southern Africa

In 2007, COMESA and the EAC launched STRs for certain types of commodities, whereby small-scale traders benefit from a simplified customs document and a simplified certificate of origin (SCOO), under which goods that are originating from member countries and whose value does not exceed US$1,000 (COMESA) orUS$2,000 (EAC) per consignment qualify automatically for duty-free entry in the respective markets. The certificate is issued at the border posts to enable traders located in remote areas to benefit from the regime. The STR mechanism has not yet been adopted in SADC, although efforts are underway to develop similar provisions as part of the SADC trade facilitation programme and the SADC Industrialisation Strategy and Roadmap (SISR).

Under the STRs, governments – on a bilateral basis in COMESA and for the entire community in the EAC – have agreed on lists of products that benefit from duty free treatment for small consignments. Applicable lists are displayed at border posts and available at the offices of the cross-border traders’ associations and customs both at the border and in the main towns. The simplified certificate of origin can be obtained at the border post and is signed by the customs office. It is important to note that the consignment should be comprised of goods with a resale value for it to qualify for import duty exemption. Furthermore, the STRs do not rule out the relevance of import and export permits for certain agricultural foods and animal products, meaning that traders are required to apply for such permits where necessary.

COMESA

The STR was developed by the COMESA Secretariat to facilitate informal cross-border trade. Malawi, Zambia, and Zimbabwe are the only SADC countries who are currently benefiting, although the plan is to extend it to all member states. A review of the COMESA STR for participating countries reveals several challenges faced by small-scale traders. Lack of awareness about the existence of the COMESA STR has led to traders in certain instances paying duties on goods that would be eligible for duty-free treatment under the STR. In most cases, officials are not informing traders about the STR or advising them on how to make use of it. Other challenges include physical and sexual harassment against women by male customs officials, as well as seizure of goods due to incorrect payments or non-payment of duties. As a result, these challenges have created a conducive environment for corrupt activities where traders end up paying unnecessary bribes, which can make their businesses unprofitable.[2]

On the positive side, a study undertaken in participating countries in COMESA revealed that experienced informal cross-border traders who have been in the business for a long time increased their incomes and, through government support measures, have been able to transform their informal businesses to become formal traders. Furthermore, there is evidence to suggest that ICBT creates employment and meaningful livelihoods for these actors. Interestingly, informal traders also tend to finance their own businesses, rather than seek support from formal financial institutions that in many cases are unable to assist given the informality of their business activities.

EAC

In the EAC, goods eligible for clearance through the simplified certificate of origin are provided in a list of products, known as the EAC List of Originating Goods Commonly Traded by Small Scale Cross-Border Traders. In total, 370 products currently qualify, which include agricultural commodities like maize and beans, fish products, textiles, cosmetics, office supplies, and household goods. The ease of use of the simplified certificate of origin has changed the way informal cross-border traders are doing business, as it has allowed traders to clear their consignments quickly, safely, and with less hassle. Through the STR, noticeable increases in trade volumes were recorded in Rwanda and Uganda – the two countries that since 2014 have been recording ICBT on an annual basis.

There still remain, however, a significant number of traders that lack sufficient knowledge about the rights provided under the protocols and how these provisions are applied, as well as about the obligatory customs procedures and documentation. This information asymmetry makes small traders vulnerable to harassment and corruption, including excessive charges, bribe extortion, impounding of goods, difficulties in obtaining passports and visas. Faced with uncertainty about tariffs and taxes applicable to consignments, many traders will choose to travel through a panya (smuggling) route, where personal safety and security is compromised.

SADC

SADC does not have an STR in place. However, the importance of ICBT is greatly acknowledged within the regional bloc, with efforts dating back to 2010 when SADC developed an advocacy strategy on ICBT – although it is currently gathering dust due to lack of implementation. More recently, SADC adopted an industrialisation strategy which incorporates the implementation of an STR in its trade facilitation component. To this effect, we have seen movement toward the establishment of an STR after ministers responsible for trade instructed the SADC Secretariat to develop an STR for intra-SADC trade which is in compliance with WTO rules and the Kyoto Convention for the Simplification and Harmonization of Customs Procedures.

Despite the absence of an STR, a lot of research has been undertaken on ICBT in SADC. Recent research based on data collected from 146 cross-border traders from 8 SADC countries gave insights into the key success factors and constraints faced by small-scale traders. This study noted that traders lack formal protection due to the informal nature of their operations. The lack of recognition of cross-border trade as a form of business results in the criminalisation of trade, which leads to harassment and abuse by authorities.
 

Concluding remarks

It is undeniable that ICBT is important for the east and southern Africa region; it constitutes a source of employment and income for many people, supports poverty reduction, and can contribute significantly to food security. Women, who are major players in this sector, stand to benefit most from any measures aimed at promoting ICBT. Common to all the regional economic communities (RECs) are the challenges related to physical and sexual harassment at borders, personal safety and security, rampant corruption, abuse of power, as well as other activities that border on criminality and promote smuggling and the use of informal border crossing posts. It is also important to note that while provisions in the east and southern African RECs’ treaties and legal texts include elements that are relevant from the perspective of facilitating and promoting ICBT, they do not seem to adequately take the sector into account, and thus do not respond to its needs effectively.

What is clear is that where tangible programmes are put in place, this will help ensure that informal cross-border traders are engaged at the policy level in order for governments to better appreciate and understand the extent of the contribution that this sector can make towards sustainable and inclusive development in the region, and across the continent. Lessons can be learnt from the EAC region, where some governments are actively engaging in ICBT issues related to information dissemination and awareness raising, as well as making efforts to implement serious monitoring of trade flows across borders. The EAC states have, for example, institutionalised trade information desks at key borders to make the STR work. This has enhanced compliance with the formalities of trade and reduced the time taken to cross borders.

In conclusion, it will be critical for east and southern African countries to establish and strengthen data collection and analytical capacities in order to effectively measure informal cross-border trade’s contribution to their respective economies and design appropriate policy responses. The region needs to create a policy, regulatory, institutional, and business environment that enhances the role of informal cross-border traders, legitimises their activities (where the trade is found to be beneficial to the economy), and gradually mainstreams them into the formal economy.

It is important to note that ICBT (movement of goods) cannot be separated from the movement of traders. This must be accommodated in agreements and protocols relating to services and the movement of people. Food safety is also still a challenge and there is therefore a need to explore a more appropriate approach to standards compliance (technical regulations and SPS) for small-scale trade which does not compromise human, animal, or plant health. The provision of adequate infrastructure at borders is also critical for harnessing the full potential of ICBT, and efforts currently underway in the area of infrastructure development should thus be commended and enhanced.[3]

Lastly, while African countries recognise the important role trade facilitation can play from an economic development perspective, the adoption of trade facilitation measures is usually hampered by political economy issues, as certain categories of stakeholders may feel that their interests are threatened. Therefore, for Africa to achieve its integration aspirations, there is a need to bring all stakeholders on board. Furthermore, it is also crucial to have a broader view of trade facilitation, one that goes beyond freeing trade by unlocking border and transit measures to include hard infrastructure development as well as behind-the-border policies that impact on trade.[4]

This article is a shortened version of a Trade Brief published by TRALAC.
 

Author: Taku Fundira, Associate, TRALAC

Photo credit: Jan Hoffmann


[1] Koroma, Suffyan, et al. “Formalization of informal trade in Africa Trends, experiences and socio-economic impacts.” Rome: Food and Agriculture Organization of the United Nations, 2017.

[2] Muqayi, Solomon. “The relevance of the Simplified Trade Regime in addressing trade protectionism: Small scale cross-border traders at the Chirundu One-Stop-Border Post.”Pakistan Journal of Social Sciences 12, no. 3 (2015).

[3] Bausinger, Mirabel. Effective Implementation of SADC’s STR. Imani Development, 2017.

[4] Dube, Memorym and Patrick Kanyimbo. “Leveraging Trade Facilitation to Drive Africa’s Regional Integration Agenda.” Bridges Africa, Volume 6, Issue 3 (May 2017).

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