Free Trade Area with US proposed

A US initiative to turn the southern African region into a bilateral free trade area (FTA) would enhance trade between the US and some of the world's poorest countries, its proponents say. They maintain it would also give African consumers a price break on popular American goods, while making African products cheaper in US markets. But the initiative may also bring complications as Swaziland, for example, depends on customs taxes on imports for half of government revenues. "A US-Southern Africa Free Trade Area (FTA) will expand US access to the vital and growing southern African market to the benefit of [American] farmers, workers, businesses and families," US trade representative Robert Zoellick said on a visit to the region last month. "And it will give new hope and economic opportunity to the people of southern Africa by increasing trade, creating new jobs, boosting economic growth and development, and promoting regional integration." Zoellick has already held talks on a possible FTA with the trade ministers of Botswana, Lesotho, Namibia, South Africa and Swaziland - the five member states of the Southern African Customs Union (SACU). Last November he notified the US Congress of US President George W. Bush's intention to pursue the plan. He said the initiative would help African countries boost economic development through increased trade, and benefit US businesses, workers and consumers by providing preferential access to the largest export market in sub-Saharan Africa. US exports to SACU were worth more than US $3.1 billion in 2001. It would also counterbalance a trade advantage the European Union (EU) enjoys from its free trade agreement with South Africa, although Zoellick said the US does not believe that it would be a situation where the US benefits at the EU's expense. However, although SACU countries with larger export industries would benefit more from the proposed FTA, smaller nations would have to significantly boost exports to make up for lost customs receipts, regional economists say. "The customs union set up at present permits the sharing among SACU countries of customs duties imposed on imports, and each country's share is determined through negotiations that resulted this past year in a revised SACU trade treaty," Martin Dlamini, governor of the Central Bank of Swaziland, told IRIN. As the region's largest importer, South Africa should claim the lion's share of SACU receipts. But it has chosen to negotiate away some of its share to smaller neighbouring countries and in so doing subsidise some economies. The purpose for doing so, Dlamini said, was to boost regional security, and keep stable local markets for South African goods. Swaziland, for instance, imports 80 percent of its goods and services from South Africa. Fifty-one percent of its government revenue to meet the 2002/03 budget came from SACU receipts, compared to only 8.73 percent from company taxes, 15 percent from sales taxes and 13 percent from individual taxes. "Government's desire over the years has been to reduce dependency on this item," noted Dlamini. "In fact, we are seeing a decline. This year, 48.7 percent of revenue is expected to come from SACU." The decline is attributed to better collection of other taxes, and a slight rise in company taxes as new manufacturing firms open in the kingdom, drawn by another US initiative, the African Growth and Opportunities Act (AGOA). "Swazi goods enjoy duty-free access to the US market, and this is a major enticement, especially for Asian garment manufacturers," Mason Dlamini of the Swaziland Industrial Development Corporation told IRIN. However, if an FTA allowed goods from all nations in the region to enjoy tax-exempt status in the US, Swaziland would have to find another inducement besides AGOA to attract investors. However, Washington is selling the FTA concept to SACU nations as an opportunity for African businesses to expand markets, and become more competitive globally.