The impact of non-tariff measures on SADC agricultural trade

Abstract

Fifteen countries which are members of the Southern African Development Community (SADC) have embarked on a regional integration initiative. In 1996, a trade protocol that aimed to increase trade among members by removing trade barriers was signed. In the year 2000, this protocol was implemented, leading to a Free Trade Area (FTA) in 2008. More than 85 % of SADC trade was free of customs duties from 2008 onwards. However, while custom tariffs were reduced, the share of SADC trade did not show any improvement over the tenyear period after implementing the trade protocol. Accordingly, the objective of this study is to examine the factors which contributed to lack of improvement in SADC trade, particularly the role of Non-Tariff Measures (NTMs). One of the main challenges in analysing NTMs in SADC is the unavailability of relevant information. An SADC NTM database was built as a repository of official NTMs. In order to quantify NTMs, a database was classified, similarly to the international database. Agricultural products at HS 4-digit level for ten SADC countries were included in this repository, and groupedinto six main categories; namely animal products, cereals, horticultural products, oilseeds, industrial and processed products. The trade data challenges within SADC countries inadvertently prescribed the econometric methods to apply for the set objectives of the study. The two main challenges of SADC trade data are missing data for some years and high percentage of zero trade flows. A latent threshold gravity model was employed with hierarchical specification to control for country effects. The hierarchical model captures individual country effects, such as the impact of NTMs on trade volumes, and thus intra-SADC trade. Such impact was then assessed when an additional NTM is introduced or increases trade volumes. The two effect models were examining the attributes of changes in regional trade, as well as those attributes of change in NTMs. The effects NTMs were incorporated into the model by weighting the number of NTMs by share of trade in the region, as well as ranks of country NTMs within product groups. Types of NTMs which were estimated are Sanitary and Phyto-Sanitary measures (SPS), Technical Barriers to Trade (TBT) and an aggregation of all other NTMs which do not belong to the two groups. Results show that there is evidence NTMs were increasing at the same period when tariffs were being reduced. Using the inventory methods of evaluating presence and prevalence of NTMs, it was also evident that NTMs are used across most agricultural products. The percentage of products affected by NTMs in 2010 was much higher than in 2000. The econometric model results show that all gravity model variables, GDP, border and language were consistent with the theoretical expectations.Distance does nothave significant influence on SADC trade. The reason for this has to do with the trading pattern of SADC countries, which is very high between contiguous members, compared to non-contiguous members. The estimation of zero observed trade, using a threshold model, provided additional understanding of the role and reasons for such trade. The estimated effects of the observed zero trade showed that if this threshold is high, implying that trade costs (NTMs) are restricting trade, then zero trade was observed. When high percentage of zero trade is observed, then intra-SADC trade remains small or declines. However, if the threshold is low, intra-SADC trade increases, as was observed in the case of industrial products. The overall results confirm that NTMs do have an impact on intra-SADC trade. Industrial and cereal products are more responsive to NTMs than the other five product groups. A unit change in NTMs by regional trade members has more effects on intra- regional trade than a unit change in trade value. That is the case because the SADC is already exchanging a large share of its total trade with non-SADC members. Therefore, attention should be given to addressing the way NTMs are introduced. One of the important findings from the study is that the intra-SADC trade is affected more by the effect of an additional NTM, than an additional unit of trade in value. The effect of addressing NTMs is one and half more than those of additional trade value. So, in order to improve intra-SADC trade performance, focus must on addressing the NTMs and growing trade. In addressing NTMs, it does not necessarily require removing or even reducing them. It is about making it easy to comply with them. SADC trade can be improved substantially by aiming to harmonise NTMs and overall policies.