1. Appendix 2C: The Preferential Trade Area Of Eastern And Southern Africa<br />Institutions of the PTA <br />Introduction <br />The Treaty establishing the Preferential Trade Area for Eastern and Southern Africa was signed in December 1981, as a first step towards higher forms of regional economic cooperation and integration to bring about sustainable growth and development of Member States. The Treaty came into force in September 1992 following ratification by nine Member States. <br />The PTA is primarily funded by subscriptions paid by Member States. Subscriptions were initially based on the following formula: country's GDP, income per capita and value of intraregional exports. Weights of 30%, 40% and 30% were assigned to each parameter respectively. The formula was revised in 1989 to 30%, 15% and 42,5% respectively, and included a new parameter i.e. intraregional imports weighted at 7.5%. <br />It should be noted that the formula is currently under review in response to complaints that it places a heavier burden on a few states. <br />Historical background <br />Formation of the Preferential Trade Area (PTA): Following the recommendation of the Lagos Plan of Action to expand intraAfrica trade, the United Nations Economic Commission for Africa (ECA), set up five subregional Multinational Programming and Operational Centres (MULPOC's). These centers were for Eastern and Southern Africa, West Africa, Central Africa and the Great Lakes Community comprising Burundi, Rwanda and Zaire. It was recommended that preferential trade areas with similar arrangements be established within each MULPOC area not later than December 1984. <br />The MULPOC for Eastern and Southern Africa, based in Lusaka, Zambia, successfully negotiated a treaty for the establishment of the Preferential Trade Area for Eastern and Southern Africa in 1981. <br />Membership and location: The PTA Treaty was signed on 21 September 1982 following ratification by more than seven signatory states as provided for in Article 50. Today, twenty-two states are members of the PTA: Angola, Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, Somalia, Sudan, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. The Republic of South Africa is expected to join in the near future. Botswana is not yet a member. The PTA is headquatered in Lusaka, Zambia. <br />Objectives and funding of the organisation <br />The objectives of the PTA are summarised as follows:- <br />i) to promote cooperation and integration covering all areas of economic activity, particularly trade and customs, industry, transport and communications, agriculture and monetary affairs <br />ii) to raise the standards of living of the people of the region by fostering closer relations among Member States <br />iii) to create a common market by the year 2000 in order to allow the free movement of goods, capital and labour within the subregion and <br />iv) to contribute to the progress and development of all other African countries.<br />Towards attainment of these objectives, PTA strategy includes: <br /> reduction and elimination of trade barriers on selected goods traded within the area <br /> cooperation in customs through simplification and harmonisation of customs procedures and regulations <br /> introduction of rules of origin to determine which goods will receive preferential treatment <br /> granting of transit rights to all transporters when coming from or entering other Member States or third countries <br /> clearing and payments arrangements to promote trade in goods and services within the subregion <br /> cooperation to develop coordinated and complementary policies and systems in transport and communications <br /> cooperation in the field of industrial development in order to promote self sustained industrialisation within the PTA, to expand trade in industrial products and to bring about structural transformation of industry for the purpose of fostering the overall social and economic development of Member States <br /> cooperation in the area of agricultural development so as to raise production and supply of food to coordinate the export of agricultural commodities to harmonise programmes in agricultural production develop land and water resources share agricultural services, technology and marketing and stabilize the prices of agricultural commodities in the subregion <br /> simplification and harmonisation of trade documents and procedures in the area and <br /> interventions to assist the least industrialised Member States e.g. through special consideration in allocating multinational industries. Thus, the PTA has a broad and challenging mandate.<br />Organisational structure <br />The authority: The Authority consisting of heads of state and government is the supreme policy organ of the PTA. The decisions and directions of the Authority are by consensus and are based on recommendations of the Council of Ministers. <br />The Authority is empowered to decide on the accession of members under Articles 46 and 50 of the Treaty, appoint the Secretary General of the PTA, as well as the judges of the Tribunal. It also decides on the accession of bodies, institutions or enterprises to membership of the Eastern and Southern African Trade and Development Bank. <br />Council of ministers: Ministers, preferably of trade and industry and designated by Member states, sit on the council. The Council is responsible for ensuring that the PTA functions in accordance with the Treaty. It keeps PTA's activities under constant review in order to advise the Authority on matters of policy and gives directions to all the other subordinated institutions of the PTA. Decisions of the Council are taken on the recommendation of the Intergovernmental Commission of Experts. <br />Intergovernmental commission of experts (ICE): Member State's experts in customs and trade, industry, agriculture, transport and communications, administrative and budgetary affairs and legal and financial matters sit on the Commission. The ICE'S main function is to oversee the implementation of the provisions of the Treaty. The Commission also considers reports from all the technical committees of the PTA. Its decisions are recommendations to the Council of Ministers. <br />Technical committees and subcommittees: There are technical committees for each economic sector forming the activities of the PTA. The technical committees have authority to appoint subcommittees which report to them. Current technical committees of the PTA are the Committee on Industrial Development, Committee on Agricultural Cooperation, the Transport and Communications Committee, the Committee on Botswana, Lesotho and Swaziland, the Committee of Legal Experts and the Administrative, Finance and Budgetary Committee. The decisions of the technical committees are recommendations to the Commission and are taken by simple majority. <br />The PTA tribunal: The Tribunal is the judicial organ of the PTA and it ensures proper interpretation and application of the provision of the Treaty. It adjudicates any disputes that may arise among Member States relating to the interpretation and application of the Treaty. The decisions of Tribunal are binding and final. <br />The Committee of Central Bank Governors: The Committee of Central Bank Governors determines the maximum debit and credit limits in relation to the Clearing House and the daily interest rate for outstanding debit balance. The Committee also deals with issues concerning monetary and financial cooperation. <br />The Secretariat: The head of the Secretariat is the Secretary General of the PTA. The Secretariat administers, undertakes research and implements the decisions of the Authority and the Council of Ministers. It assists all institutions of the PTA in carrying out their functions. There are seven divisions in the Secretariat, namely, Administration, Trade and Customs, industry, Energy and the Environment, Transport and Communications, Agriculture, Fisheries and Forestry, Monetary Affairs and Legal Affairs. Each division is headed by a Director reporting directly to the Secretary General. <br />Figure 2C-1 Organisational chart of the Preferential Trade Area<br />Cooperation with donors and intergovernmental organisations <br />During 1985-1992, development partners have contributed US$1.2 billion to the PTA towards implementation of its programmes and projects. Cooperating partners are listed as follows: <br /> Bilateral donors: Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Norway, Sweden, the United Kingdom and the United States of America. <br /> Multilateral Development Financing Institutions: ADB, Commonwealth Secretariat, EC, United Nations agencies such as ECA, FAO, IFAD, ITC, UNCTC, UNDP, UNIDO, UNIFEM, WHO and the World Bank.<br />The programme of action of the PTA <br />The PTA programme of action covers trade liberalisation, clearing and payments procedures, cooperation in transport and communications, industry, agricultural development and monetary and financial cooperation. <br />Achievements in trade liberalisation and promotion since 1982 include: <br /> a 60 percent average tariff reduction on goods originating in the subregion. It is envisaged that interregional tariffs will be progressively eliminated by the year 2000 as follows: 1994 70%, 1996 80%, 1998 90% and 2000 100%. <br /> abolition of the Common List which specified the products in each member state that could be traded at reduced tariff rates, resulting in preferential exchange of all commodities produced within the subregion <br /> the Protocol on the Rules of Origin has been streamlined to facilitate intraregional trade and investment. The majority local equity and local management clause has been deleted. Value added criteria is being applied with a commodity said to originate from a Member State if its value added is at least 45 percent. <br /> establishment of a computer based subregional trade information network (TINET) with focal points in each Member State, providing information on the enterprises in each country, countries' imports and exports and tenders.<br />Transport and communications <br />Achievements in transport and communications have been: <br /> rehabilitation and upgrading of interstate roads, railways, ports and telecommunications links. About 50 percent of the network has been restored <br /> the PTA Third Party Motor Vehicle Insurance Scheme (the Yellow Card) implemented in July 1987 has facilitated the movement of vehicles within the subregion. <br /> road customs transit documents have been simplified and harmonised with the introduction of a single Road Customs Transit Declaration Document.<br />Monetary and financial cooperation <br />Achievements in monetary and financial cooperation have been: <br /> establishment of the Clearing House in February 1984 <br /> establishment of the PTA Trade and Development Bank for Eastern and Southern Africa (PTA Bank) in November 1985. The Bank provides finance for multinational development projects and financial resources to promote intraregional trade <br /> introduction of PTA travellers' checks, UAPTA, in August 1988 enabling Member States' citizens to travel within the region without having to use foreign currency. The UAPTA is equivalent to 1 Special Drawing Right (SDR) of the International Monetary Fund and, <br /> the launching of the PTA Monetary and Financial Harmonisation Programme in November 1990 with the eventual goal of establishing a monetary union to facilitate the economic integration process.<br />Institutions of the PTA<br />The Clearing House: The PTA Clearing House was set up in 1984 under the Reserve Bank of Zimbabwe. In January 1992 the Clearing House was formally established under its own charter with its own secretariat, headquartered in Harare, and run by an executive secretary. <br />The objective of the Clearing House is to promote cooperation in the settlement of payments for intraPTA trade. The Clearing House operates a payments scheme which allows for settlement of day-to-day payments in member state's currencies. Each member state has an account with the Federal Reserve Bank of New York through which just the net debits on trading are settled in hard currency. Settlement of accounts is done every 75 days beginning 15 March to 15 November each year. <br />The Eastern and Southern African Trade and Development Bank: Based in Bujumbura, Burundi since 1985, the PTA Bank is currently headquartered in Nairobi, Kenya following political developments in Rwanda and Burundi. The Bank provides financial and technical assistance to promote Member States's economic growth and development. <br />The Bank has disbursed UAPTA 58 million since 1990 to finance industrial projects and trade. Most of the money, UAPTA 41 million, was channelled to the trade sector. <br />The PTA reinsurance company (ZEPRE): Established in September 1992, ZEPRE is headquartered in Nairobi, Kenya. Its function is to reduce the outflow of foreign exchange in the form of payments to overseas reinsurance companies by providing reinsurance services for companies within the PTA. Insurance companies have been asked to cede 10 percent of their business to ZEPRE. <br />PTA Association of Commercial Banks (BAPTA): BAPTA was formed in November 1987 by commercial and merchant banks operating in the PTA subregion. It facilitates the operations of the Clearing House by establishing correspondent relationships among commercial and merchant banks. Additional functions include harmonisation of banking practices; provision of ancillary services and credit facilities for various economic agents and provision of a permanent forum to discuss issues of common concern among members. The secretariat is housed in the secretariat of the Clearing House. <br />Eastern and Southern Business Organisation (ESABO): The charter establishing ESABO was signed in Maputo, Mozambique, at the end of August, 1994. ESABO replaces the PTA Federation of Chambers of Commerce and Industry. Its main function is to promote cross border cooperation among national chambers of commerce and industry. <br />Federation of National Association of Women in Business: The Federation was formed serves as a mechanism for channelling resources to female entrepreneurs in the PTA and provides a forum for discussion for businesswomen. <br />The Leather and Leather Products Institute (LLPI): The LLPI was established in Addis Ababa in November 1993 Its main objective is to upgrade member states' leather sectors through training, research and development, consultancy services and information dissemination. <br />Advantages of the PTA are: <br /> The PTA is the largest subregional economic cooperation arrangement in the African continent. The total population in the region is about 200 million with an effective demand of at least 100 million. <br /> The resources of the sub - region includes an area of sixty percent covered by rivers and lakes which could be jointly exploited to develop irrigation, fisheries, water transport and hydropower; gold, diamonds, platinum, chrome, manganese, phosphate, iron ore, coal, 170 billion cubic meters of natural gas, over 200 billion tonnes of petroleum; an estimated hydroelectric capacity in excess of 700 billion kilowatts per annum; cobalt, copper, nickel and uranium. Less than 9 percent of ariable land is currently being cultivated. There is, therefore, a large potential for regional integration.<br />Disadvantages of the PTA are: <br /> High transport and transit costs; border tolls are high but are revenue for countries; <br /> Lack of complementarity in production, trade and consumption in the PTA retards trade and economic integration <br /> The subregion includes 14 countries namely, Angola, Burundi, Comoros, Djibouti, Ethiopia, Lesotho, Malawi, Mozambique, Rwanda, Somalia, Sudan, Tanzania, Uganda and Zambia that are classified by the UN as least developed countries. Thus, significant disparities in economic activities and development militate against regional integration <br /> The more economically advanced Member States have tended to maximize their exports at the expense of economically weaker countries.<br />From PTA to COMESA <br />Based on past experiences and member states' determination to move forward with cooperation to bring about sustainable growth and development, strategy for the 1990s is to bring about full market integration beginning with the transformation of the PTA into the Common Market for Eastern and Southern African States (COMESA). <br />COMESA is based on the concept of multispeed development by which two or more member states can agree to accelerate the implementation of specific provisions of the Treaty while allowing others to join in later on a reciprocal basis. Whereas the PTA emphasized decision by consensus, and as such, programs were pegged on the slowest moving Member States, under COMESA a two thirds majority will prevail where consensus cannot be reached. The COMESA Treaty provides for both enforceability and sanctions. Member states are obligated to abide by common decisions. Sanctions may be imposed against any member state that quot;
deliberately and persistentlyquot;
fails to comply with agreed decisions. Errant states can be suspended and, eventually, expelled from membership to COMESA. <br />Organisational structure <br />COMESA is expected to retain the main structures of the PTA. The Tribunal will be replaced by the Court of Justice and a Consultative Committee will be established. <br />COMESA embodies the following principal elements which are not contained in the PTA: <br /> a full free trade area involving trade liberalisation under which there is free movement of goods and services produced within the common market and the removal of all nontariff barriers <br /> a customs union involving zero tariff on all products originating in the common market, and the adoption of a common external tariff on imports from nonCOMESA countries <br /> free movement of capital and finance and a common investment procedure so as to create a more favourable investment climate for foreign direct investment, crossborder investment and domestic investment <br /> a payments union and eventual establishment of a COMESA Monetary Union and <br /> free movement of persons, common visa arrangements, including the right of establishing and eventually, the right of settlement.<br />In addition, COMESA is designed specifically to facilitate the business community to take maximum advantages of regional integration. The role of member state Governments will be to create an enabling environment for business to invest and produce more efficiently. <br />The future <br />COMESA will replace the PTA when the Treaty is ratified by at least 11 member states. Whilst most PTA members have signed the treaty at a meeting in Malawi, in December 1994, not all countries ratified it. One of these countries was, significantly, Zimbabwe, which enjoys one of the highest inter PTA exports. Zimbabwe would not ratify the formation until, the new COMESA's proposed relationship with SADC had been funded. <br />The following mechanisms to promote intraregional integration will be put in place: a stock exchange to bring about a capital market in the region an equity fund subscribed by western institutional investors to facilitate investment in the region a revolving fund for supporting women in business with a targeted capitalisation of US$360 million a US$130 million reserve fund under the PTA Bank to support the operations of the Clearing House. It is also envisaged that the UAPTA will be convertible in European currency markets and in South Africa by 1997. <br />Closer cooperation between PTA and other intergovernmental organisations in the Eastern and Southern African region will be pursued in order to avoid duplication of activities and waste of scarce resources. In August 1994 the issues were discussed by heads of states and Government at the SADC Summit in Lusaka which recommended that a Consultative Committee of Council of Ministers of PTA and SADC be set up to formulate guidelines and procedures to harmonise, coordinate and rationalise the activities of the PTA and SADC. <br />Table 2C-1 GDP, 1980 prices* US$ bn <br />198219831984198519861987198819891990150775291617061066868764587448890947321 0121 0831 0821 2081 2551 30613521 3721385315416016716116617017217217443013013143163223343373343385421544284361408743704802491949754891675157570780781998788930998701032010844738536339140340042948252055881 2021 2471 3141 4021 4071 4411 4781 552162291 1251 1291 1821 2651 3651 4841 5851 655.1 774102308204520001 7921 8271 9001 97820892125111 27813551 29713541 4281 4201 4271 3931359127516827057627898298238238011377767937753970667753784176928261777914585580603689715705768799816155074505052805300554857676064633165971620722270207720391 8641 984212722672396174011392538843954396140844311432143481861486282616265906765669573147719840851 02551 6985233552693556915814561 4436379365688<br />* 1-18 lists countries in alphabetical order e.g.<br />1.Angola2.Burundi3.Comoros4.Djibouti5.Ethiopia6.Kenya7.Lesotho8.Malawi9.Mauritius10.Mozambique11.Rwanda12.Somalia13.Sudan14.Swaziland15.Tanzania16.Uganda17.Zambia18.Zimbabwe<br />Eritrea, Madagascar, Namibia and Seychelles were not yet members.Source: PTA Development Report: A Decade of Economic Integration 1982 -1992.<br />Table 2C-2 Intra-regional trade by country 1985-92* (US$m) <br />1985198619871988198919901991199217.702.809.205.205.485.797.3010.41241.5336.9328.0133.7128.4225.0430.7941.0833.994.644.562.893.904.555.055.49430.5734.6137.4538.3643.3544.2248.2551.43529.7737.8839.7436.4836.1235.4239.0843.156218.60273.34278.42290.47273.87294.06320.52318.6770.300.303.401.702.002.342.562.4784.548.1418.608.6920.0295.30104.75114.89943.4739.1146.8781.1259.7762.4371.1392.381012.2113.4823.2515.4421.1644.1949.8155.591124.8653.4373.1069.7176.9480.0998.9187.61120.800.701.300.601.601.401.514.201343.3555.3545.7745.6841.5143.1647.9150.72148.412.703.402.563.265.025.466.45158.3117.8326.8728.9429.5734.2837.7937.071636.8843.9735.9636.4431.7035.8539.3139.94177.075.6613.5220.2128.1929.3132.3934.141840.5532.3441.3056.2748.0752.4259.3697.051990.50110.9887.1997.4188.5792.86102.22112.462086.7359.3065.81122.28145.68177.69200.46199.1421110.48110.75158.68231.76231.38228.39249.76246.90850.62944.241043.101225.921220.541402.801554.321651.24<br />Excludes Eritrea.Source: Clearing House Annual Report 1993<br />1.Angola2.Burundi3.Comoros4.Djibouti5.Ethiopia6.Kenya7.Lesotho8.Madagascar9.Malawi10.Mauritius11.Mozambique12.Namibia13.Rwanda14.Seychelles15.Somalia16.Sudan17.Swaziland18.Tanzania19.Uganda20.Zambia21.Zimbabwe<br />Table 2C-3 Clearing house transactions (UAPTA million) <br />Total valueAnnual % changeNet settlement foreign currency % of total198474.674.6198598.1+31.585.71986118.1+37.251.71987175.8+48.054.81988283.1+61.050.11989441.0+55.846.91990389.0-11.842.31991348.0-15.233.71992272.4-21.831.11993197.8-27.422.0<br />Source: Clearing House Annual Report.<br />