# **5) TARIFF BARRIERS TO TRADE**

Tariffs remain a powerful instrument through which government can directly influence international trade and product market integration even though they are not necessarily the most important barrier to economic integration (Anderson and van Wincoop, 2004). Tariffs restrict imports and introduce a wedge between domestic and international prices. It is less recognized that tariffs are a tax on exports.<sup>8</sup> Tariffs on intermediate inputs raise production costs and adversely affect the ability of exporters to compete internationally. Additionally, by raising the relative profitability of supplying the local market, scarce resources are drawn away from export competing sectors. Finally, lower imports and exports can cause the currency to appreciate, creating further adverse incentives to produce for the export market.

Tariff developments in SADC countries have taken two forms: Regional integration and multilateral/unilateral reform. On the regional front, SADC countries have actively participated in regional integration schemes. Internal tariff barriers were largely eliminated by the time SADC‟s Free Trade Agreement was launched in 2009 <u>(http://www.sadc.int).</u><sup>9</sup> The formation of the FTA is considered the first step in a much grander integration program including a Customs Union supposedly by 2010, a Common Market (CM) by 2015, a Monetary Union (MU) by 2016 and a Single Currency by 2018 (http://www.sadc.int).

Yet sub Saharan Africa is characterized by a plethora of overlapping regional integration arrangements, each with their own proposed tariff schedules and rules of origin. Of SADC members, only Mozambique is not a member of another arrangement. Multiple memberships by SADC countries in existing or proposed customs unions (Tanzania in EAC, COMESA which includes all SADC members except for South Africa, Botswana and Mozambique) is inconsistent with the proposed formation of a SADC Customs Union. This dilemma of multiple memberships also extends to other areas such as infrastructure, where different harmonization options and strategies are being pursued (Kritzinger-van Niekerk and Moreira 2002).

The second type of tariff reform is multilateral or unilateral liberalization. On this front, SADC countries have made considerable progress in reducing import barriers since the early 1990s. Table 5 presents summary statistics of the 2008 MFN tariff rates applied by each SADC country. Simple average tariffs range from 2.9 percent in Mauritius to 25.5 percent for Zimbabwe.<sup>10</sup> For most countries, average MFN rates

> 8 This is the well known Lerner Symmetry theorem. Edwards and Lawrence (2008) find that reductions in the export bias associated with tariff liberalisation accounted for approximately 40 percent of South Africa's export growth after 1994. Similarly, Edwards (2010) finds that liberalisation of tariffs on intermediate inputs is associated with improved manufacturing export performance in Africa. 9 South Africa, for example, reduced most tariffs on SADC imports to zero in 2000 (Edwards 2005), while other countries phased their tariffs down at a slower rate (http://www.sadc.int/fta).

> 10 The average rate for Zimbabwe appears to be particularly high even compared to earlier period. For example, the WTO World Tariff Report for 2007 estimates average protection in Zimbabwe to equal to 14 percent. The 2006 WTO World Tariff Profiles indicate a simple average of 16 percent for Zimbabwe for 2003. This highlights the difficulty in estimating average protection for countries. Many of the countries, SACU in particular, used non-ad valorem rates such as specific rates, mixed rates and compound rates. SACU also used formula duties which we find a reservation price. If import prices fell

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