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History of COMESA - Key Challenges in the Global Economy

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Article Index
History of COMESA
Global Economy
Regional Economy
Opportunities
The Future Outlook
Strategy
Integration
Implementation
Culture and Strategy
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Key Challenges in the Global Economy

Globalisation

The last decade of the 1990s has been dubbed by some as the globalisation decade. Although globalisation per se is not a new phenomenon, especially viewed against a historical perspective, the current form of globalisation, particularly in the context of economics and finance, draws its motive force from two mutually reinforcing sources: the unrelenting revolution in information and communication technology (ICT); and the 'triumph' of market principles over command economics. The revolution in ICT has led to the redefinition of the concept of time and distance, but more significantly, it has given new meaning to the term "comparative advantage". Information is now decisively a new factor of production, conferring advantage to those who know how to access and use it.

The adoption of the market economy as the economic model of choice by many nations across the globe has resulted in greater liberalisation of trade and finance. Through the new enabling liberal environment and the agency of ICT, the world has witnessed movements of capital at unprecedented speeds and volumes. This phenomenon, dubbed financial globalisation, poses a new threat to emerging economies because of its high elasticity to huge 'mood swings' which can leave economies in ruin as the crisis that affected Asian 'Tiger' Economies in 1997/98 can attest.

At the level of micro-economics, globalisation is spawning a new corporate dynamic in which the most evident form is a growing wave of mergers/acquisitions. There is also an ever increasing inter-firm strategic alliances as firms seek to: exploit economies of scale or synergy, take advantage of differences in comparative advantage, spread the risks of high fixed costs, and gain access to new technologies and new markets. Every year has witnessed record corporate consolidations. Clearly, these waves of mergers and acquisitions point to a fundamental shift in the way the concept of competition and co-operation in the post-modern era is viewed. The message here appears to be "small may be beautiful but big and larger is better". In 1997, the UN (Department of Economic and Social Affairs) estimated that the largest 100 transitional corporations accounted for about one third of global foreign direct investment.

These global challenges pose special challenges to Africa in general, and the COMESA region in particular.

The Global Trading System (GATT and WTO)

The General Agreement on Tariffs and Trade (GATT) was created over 50 years ago. It was transformed into the World Trade Organisation (WTO) in 1995, after eight negotiating "rounds" which produced accords that slashed tariffs on goods, established open markets and set rules on fair trading for all members. The huge expansion of global trade which has taken place since the Second World War has been attributed largely to GATT. The last GATT round, the Uruguay Round, amounted to a massive global tax cut and in the four years following its full implementation, 1995 - 1999, world trade increased by 25 per cent.

COMESA was notified to WTO under the Enabling Clause on 29th June 1995. It is currently (March 2000) the only regional trade arrangement in Africa notified to WTO. Sixteen COMESA members are members of WTO, while three are observers (two of them are seeking accession), leaving two COMESA member States who are not members of WTO.

The WTO is an organisation driven by its members. Consultations and subsequent decisions, are those of direct representatives of WTO member States, or at least those member States that have permanent representations in Geneva. At present countries in Eastern and Southern Africa, in general, do not participate in WTO as actively as they should and the level of awareness of WTO in the region is very limited. This has the effect of countries of the region having to conform to the rules and regulations of WTO without being part of the negotiating and decision-making processes. Full participation in WTO by COMESA member States is of paramount importance as COMESA is operating within the multilateral trading system environment and not in isolation. COMESA complements the multilateral trading system by enhancing competitiveness of enterprises in the regional market. Unless the countries of the region find ways in which they can more effectively become part of the WTO decision-making process they will not be able to address the issues of concern to most developing and LDCs.

The challenge which faces the countries of the region is how to become more involved in the decision-making of WTO and the implications of implementing existing WTO rules and regulations on the economies of the region. The challenge for COMESA is to ensure full preparedness and adequate technical negotiating and implementation capacity among member States, and also to forge and maintain a common stand during the negotiations.

Post-Lomé EU-ACP Relationship

The Fourth Lome Convention, which ran from 1990 - 2000, came to an end on 29th February, 2000. The Lomé Convention, has been in operation since 1975. The Convention provided grant aid to the African Caribbean Pacific (ACP) group of countries through a series of European Development Funds (EDFs) which includes such facilities as STABEX (export earnings stabilisation scheme), SYSMIN (assistance to the mining sector and/or for diversification from heavy dependence on mining) and the Structural Adjustment Facility. The Convention also offered ACP countries non-reciprocal preferential access into the European Union market.

Annexed to the Convention, but separate from the Convention, were the Banana, Sugar, Rum and Beef Protocols. The protocols provided quotas of the stated commodities into the European Union at fixed prices which were above the World market prices. The Banana Protocol was contested by USA and four South American States and WTO ruled in favour of USA. And so the Banana Protocol has been terminated. The fate of the other two Protocols is uncertain.

Following protracted negotiations that had been going on since the EU issued its Green paper in 1997, ACP and EU have agreed on a new arrangement (to be signed in Fiji) to run over a period of 15 years but which will allow for a preparatory period of 8 years (from 2002) before a reciprocal free trade relationship takes effect. COMESA sees the benefits of entering into a FTA with the EU in that this should or could:

  • protect ACP access to EU markets from further deterioration;
  • help COMESA to lock in gains made in trade liberalisation;
  • be used as a vehicle for assistance from the EU for regional integration;
  • assist COMESA to gain investor confidence; and
  • act as a platform for co-operation with the EU at WTO fora.

However, from the point of view of COMESA, there are a number of issues which remain to be resolved, including:-

  • an examination of the possible adverse effects of EU-FTA arrangements on the COMESA FTA;
  • a study which will assess the potential impact of the arrangement on individual COMESA countries and economic sectors;
  • market access for non-LDCs into the EU;
  • the status of the commodity protocols;
  • structural adjustment assistance to be extended to countries joining the arrangement; and
  • reciprocity being introduced in a phased and back-loaded manner.

Implications

Globalisation in the sense of an open world trading system is seen by most economists as enhancing global welfare because of the possibilities of increasing efficiency gains through, among others, greater international specialisation and competition.

But regional integration in the context of a multilateral trading arrangement within a global economy is often seen as either being good if it is 'trade-creating' i.e. if it reinforces globalisation by lowering policy impediments to trade within a region making it possible for more efficient production, or bad if it is 'trade-diverting' i.e. if it works against globalisation by favouring trade within a region at the expense of trade outside the region. The challenge for COMESA is to ensure that it remains outward orientated in its trade and investment regime so as to reinforce globalisation in a positive way.

COMESA recognises that globalisation has winners and losers. Because globalisation gives free rein to competitive market forces, those nations that do not compete for foreign investment and export earnings on the world market will lose out. Small economies such as many in the COMESA sub-region with their small domestic markets, non-diversified production bases, underdeveloped infrastructure, inadequate skilled human capital, stand little chance of competing globally. The challenge for COMESA is to ensure that, through its regional integration arrangement, domestic growth and competitiveness of small economies are strengthened, powers of domestically entrenched special-interest groups and rent-seekers weakened, and policy stability and credibility enhanced thus making it easier to attract investment.

In addition to expanding the effective size of markets and improving access to export markets and providing incentives for foreign direct investment (FDI), the main challenge facing COMESA, is how to spur economic growth and investment through increased productivity. Increased productivity will require a restructuring and diversification of the productive base. Also, COMESA countries cannot compete in global markets in terms of high productivity and high quality on the basis of low labour wages alone. Access to technology and technical know-how are critical. Through greater regional co-operation and networking between domestic, regional and international partners, COMESA will strive to improve access to technology and other resources, and thus enhance productivity and competitiveness in the global marketplace.

An important implication of the new EU-ACP relationship on COMESA economies is that the erosion of Lomé Convention privileges and elimination of Multi-Fibre Agreement quotas, is likely to lead to the displacement of COMESA exports to Europe by other non-ACP, particularly Asian, competitors. To make up for this, COMESA economies would need to, among others, expand agricultural exports to take advantage of the anticipated increased Asian import demand for cereals, non-grain crops, forestry and fish products, etc. due to reduced trade barriers, higher incomes and structural transformation in Asia.



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COMESA Secretariat
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P. O. Box 30051

Lusaka - ZAMBIA
Tel: +260 211 229725/32
Fax: +260 211 225107

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webmaster@comesa.int
Website:
www.comesa.int

COMESA INSTITUTIONS

African Trade Insurance Agency
COMESA Clearing House
COMESA Court of Justice
FEMCOM
Leather and Leather Products Institute
PTA Bank
PTA Re-Insurance Company
Regional Investment Agency