THE UNITED REPUBLIC OF TANZANIA

Transcription

1 THE UNITED REPUBLIC OF TANZANIA MINISTRY OF INDUSTRY AND TRADE REPORT OF THE STUDY TO IDENTIFY TANZANIA S MARKET OPPORTUNITIES AND CONSTRAINTS IN ACCESSING FOREIGN MARKETS JANUARY, 2012

2 TABLE OF CONTENTS EXECUTIVE SUMMARY... iv ABBREVIATIONS... vii 1.0 BACKGROUND Export Performance and Characteristics The Export Markets Rationale Objectives of the study Scope of the study Methodology Sampling REVIEW, FINDINGS AND ANALYSIS African Growth and Opportunity Act (AGOA) Market opportunities under AGOA Specific Challenges in utilizing AGOA and US-GSP Everything But Arms (EBA) Specific challenges and constraints in utilising EBA Economic Partnership Agreement (EPA) Specific Challenges of EPA East African Community (EAC) Market Opportunities under the EAC Tanzania Trade in East African Community (EAC) Southern African Development Community (SADC) Market opportunities under SADC Tanzania exports to SADC Countries Specific Challenges in utilising SADC market ii

3 2.6 World Trade Organization (WTO) Market opportunities under WTO Challenges under WTO Bilateral Cooperation Arrangements Other Preferential Market Access GENERAL CONSTRAINTS/CHALLENGES FACING TANZANIA IN EXPLOITING MARKET PREFERENCES Internal constraints/challenges External constraints/challenges CONCLUSION AND RECOMMENDATIONS Specific recommendations Cross cutting recommendations WAY FORWARD ANNEX III: REFERENCES ANNEX 1: INTERVIEW RESPONSE MATRIX ANNEX II: GROUP OF EXPERTS iii

4 EXECUTIVE SUMMARY The export markets provide opportunities for countries to expand their markets beyond their geographical boundaries and therefore firms can enjoy the benefits of economies of scale especially for countries with small markets in terms of population and purchasing power. International trade is generally regulated by the World Trade Organisation (WTO), an organization currently composed of 153 members Tanzania is one of them. Under WTO trade among member states is mainly governed by the rules of Most Favoured Nations (MFN) and National Treatment. Essentially these rules advocate for equal treatment of member states in issues relating to application of tariffs on products. Despite these principle rules of WTO, there are a number of exceptions that are being granted to members which exclude them from implementing MFN and NT rules to all members of WTO. Such exceptions include regional economic co operations and Generalised System of Preferences. Tanzania, like other countries enjoy a number of preferences which qualify it for easy and duty free and quota free market access to a number of countries in the World and therefore provide a room for it to expand its exports and earn more foreign exchange which is crucial for economic growth and poverty reduction. The export preferences that Tanzania enjoys emanate from the East African Community (EAC), Southern African Development Cooperation (SADC), African Growth Opportunity Act (AGOA), Everything But Arms (EBA), Economic Partnership Agreement (EPA) and bilateral preferential arrangements such as Special Preferential Treatment (SPT) from China and India, Generalised System of Preference (GSP) from Canada, Japan, Turkey and South Korea to mention just a few. Through these preferences over the last five years Tanzania has managed to increase the share of export earnings to the GDP from 11% in 2005 to 17% in Most interesting is that the share of commodity export has declined from 53.1% in 2009 to 49% in 2010 of the total exports. This implies that there is a shift from exporting commodities to value added products and services. The current markets indicates that Europe which in the past was consuming more than 50% of Tanzanian exports has lost its share; for example in year 2003 Tanzania exports to Europe was iv

5 49% of the total exports compared to 35.6% in On the other hand, the share of Tanzanian exports to African countries has increased from 20% to 30.6%, Asia from 14.6 to 21% and to the Americas from 1.6% to 2.3% while exports to the rest of the world declined from 14.8% to 9.7%. Notwithstandingthese achievements in the export performance, the study has revealed that given the preferences Tanzania has in the export markets, more could have been achieved. For example, the share of export to the GDP could have been raised to beyond 25 percent that has been attained in most developing countries including Mauritius, South Africa, India and China. A number of challenges have been associated with the inadequate utilization of the export preferences and opportunities. The following are key challenges: - i. Inadequate awareness of export assistance available; ii. Inadequate export marketing skills; iii. Complex and cumbersome financial procedures to finance export sales; iv. Inadequate aggressiveness to export (inward looking); v. High Transportation and insurance costs; vi. Language differences barrier; vii. Delay in VAT refund and Duty-drawback; viii. Low production capacity of manufactures and agricultural goods which results into inadequate and irregular supply of products; ix. Low and irregular quality and standards of products produced in the country especially by small exporters; x. Inadequate awareness on the existing market opportunities; xi. High costs of doing business; xii. Low investment on research and development on products and market intelligence; xiii. Unpredictable Government export policies such as periodic export ban; xiv. inadequate relevant information on foreign market opportunities to business community; xv. Absence of commercial/trade attaches in Tanzania High Commissions and Embassies; xvi. Non Tariff Barriers;- stringent TBT and SPS requirements v

6 xvii. xviii. xix. xx. Long distances to the markets, Poor infrastructure affecting regional connectivity; Poor or inadequate incentives to exporters Poor trade facilitation especial in SADC and EAC; In an attempt to address the challenges that adversely affect the performance of Tanzania in the export market the following recommendations have been made: - i. Educating exporters on the opportunities and supports available for them ii. Undertaking tailor made courses on export marketing skills to exporters iii. Establishing export guarantee scheme, iv. Strengthening the Tanzania Shipper s Council v. Speeding up payment of VAT and Duty Drawbacks vi. Accrediting laboratories of TBS and others vii. Encouraging producers to bar codes their products viii. Attaching commercial/trade attaches to strategic Tanzania high commissions and embassies ix. Introducing trade related subjects from secondary schools x. Encourage exporters to utilize services of qualified experts on marketing xi. Supporting exporters to participate in bilateral, regional and international trade fairs and exhibitions xii. Improving services at our ports so as to attract many ships to enhance competition xiii. Enhancing training of foreign languages especially English and Chinese xiv. Improving economic infrastructures such as roads, railway, electricity xv. Enhancing and establishing development banks xvi. Encouraging development partners to support investment in standard infrastructures Facilitate Private Sector to participate in various trade negotiations fora, to give them an opportunity of knowing market opportunities available vi

7 ABBREVIATIONS ACP AGOA DRC EAC CARIFORUM CAD FUND EBA EU EC EPA EBA FEPA FTA GDP GSP JTC MFN NTBs RoO SADC SSA SMEs SPS SPT TDCA TBT TBS TFDA TRA UAE US African Caribbean and Pacific African Growth and Opportunity Act Democratic Republic of Congo East African Community Caribbean Forum of African, Caribbean and Pacific States China Africa Development Fund Everything But Arms European Union European Commission Economic Partnership Agreement Everything But Arms Framework Economic Partnership Agreement Free Trade Area Gross Domestic Product Generalized System of Preferences Joint Trade Committee Most Favoured Nation Non-Tariff Barriers Rules of Origin Southern Africa Development Community Sub-Sahara African Small and Medium Enterprises Sanitary and Phytosanitary Measures Special Preferential Treatment Trade Development and Cooperation Agreement Technical Barriers to Trade Tanzania Bureau of Standards Tanzania Food and Drug Authority Tanzania Revenue Authority United Arab Emirate United States of America vii

8 USD VAT WTO DFQF TIFA CTI TANTRADE TCCIA TNBC MIT US Dollars Value Added Tax World Trade Organization Duty Free Quota Free Trade and Investment Framework Agreement Confederation of Tanzania Industries Tanzania Trade Development Tanzania Chamber of Commerce, Industry, and Agriculture Tanzania National Business Council Ministry of Industry and Trade viii

9 REPORT OF THE STUDY TO IDENTIFY TANZANIA S MARKET OPPORTUNITIES AND CONSTRAINTS IN ACCESSING FOREIGN MARKETS 1.0 BACKGROUND The importance of export to economies of many countries in the world cannot be over emphasised. Suffice to note that through exports countries can enhance production capacities of their economic units specifically industries, farms and services due to increased market and achieving economies of scale. Exports are also are very important especially for the developing economies whose levels of science and technology are still very low as they can use export earnings to procure machineries, equipment, raw materials, inputs and other essential goods and services which are critical for economic growth and poverty reduction in any economy. In realising the above, over the past five years, the Government of Tanzania in collaboration with other key stakeholders especially the private sector has put in place policies, strategies and incentives which aim at improving exports. Policy reforms have created an attractive investment climate for domestic and foreign private investors. As such, there has been export diversification from traditional exports (coffee, cotton, sisal, tea, tobacco, cashew, cloves and fishery products) to non-traditional exports (fish, flowers, minerals, fruit and vegetables as well as processed and few manufactured products). However,, Tanzania export performance is still low given numerous export potentials and opportunities. For example, the value of export earnings in 2010 was USD 3.5 billion which is nearly half of the value of imports of USD 7.4 billion in the same year. This means the value of exports was able to finance only half of the total value of imports in the year 2010 and therefore left a deficit of USD 3.9 billion. In terms of foreign currency that phenomenon has caused a crisis for foreign currency (US Dollar) leading to depreciation on value of the local currency (Tshs) against the US Dollar which the effect has been felt in the whole year 2011whereby the Tanzania shilling depreciated by almost 30%. In view of the aforementioned, this, more efforts and resources are needed to mitigate the effect through intensified export performance. The Government focus should be on provision of 1

10 financial and technical assistance to the private sector and trade development associations so as to enhance their export capacity to utilize the existing and emerging export opportunities. The Ministry of Industry and Trade has initiated this study to identify existing Tanzania s market opportunities and constraints in foreign markets with a view to improving Tanzania exports through private sector enhanced capacity and awareness. 1.1 Export Performance and Characteristics Tanzania has an export potential for a wide range of products including agricultural, minerals, fish, semi-processed and manufactured. Over time, Tanzania dependency on traditional exports has been declining. In 2010 the share of traditional exports was 13% of the total exports. While traditional exports has been decreasing, exports of nontraditional products has been increasing. In 2010, non-traditional exports accounted for 73.9% of total merchandise. The share of earnings from commodity exports, declined from 53.1% in 2009 to 49% in 2010 of the total exports. This implies that there is a shift from exporting commodities to value added products and services. Exports as a percentage of GDP increased from 11% in 2005 to 17% in This rate compared well with neighboring countries like Kenya whose exports as a percentage of GDP declined from 18% in 2005 to 16% in The Export Markets The current markets indicates that Europe which in the past was consuming more than 50% of Tanzanian exports has lost its share; for example in year 2003 Tanzania exports to Europe was 49% of the total exports compared to 35.6% in On the other hand, the share of Tanzanian exports to African countries has increased from 20% to 30.6%, Asia from 14.6 to 21% and to the Americas from 1.6% to 2.3% while exports to the rest of the world declined from 14.8% to 9.7%. 2

11 1.3 Rationale Since the mid-eighties, the Tanzania economy has undergone fundamental transformation that redefined the roles and functions of the Government and private sector. Under the new economic environment, most of the production, processing and export functions are carried by private sector while the Government has retained its traditional role of regulatory and public support functions. Tanzania s National Trade Policy of 2003 adopts the export-led growth strategy as an engine for attaining the requisite rates of growth for poverty reduction. This in turn calls for strong and sustained export performance in which the private sector holds a fundamental role of channelling the exports into the bilateral, regional and multilateral market opportunities. Tanzania is currently a member of SADC and EAC as well as a founder member of the WTO. In addition, Tanzania is eligible for special and differential treatment providing concessions and/or lesser obligations in market access, tariff and other areas. There are also preferential opportunities such as AGOA, EBA and other bilateral arrangements. Tanzania has yet to benefit adequately from opportunities mainly due to a number of factors/challenges, though there are various efforts and initiatives which have been undertaken by the Government to ensure Tanzania s export performance is improving. Despite the initiatives which are being taken by the country, Tanzania still lags behind its main competitors including Kenya, Mauritius and South Africa in the export performance and the economy in general. This study therefore is envisaged to analyse export opportunities, constraints and challenges in order to enable the government and other stakeholders to take appropriate measures and initiatives which will enhance the country s capacity to maximise the utilisation of the available export opportunities. 1.4 Objectives of the study The main objective of the study is to identify Tanzania s opportunities and constraints in accessing foreign markets and give recommendation on how to mitigate against those constraints so as to enhance the country s ability to access and exploit foreign market opportunities in order to improve Tanzania export performance. 3

12 The specific objectives are: 1) To identify market opportunities available at bilateral, regional and multilateral markets where Tanzania participate; 2) To identify constraints/challenges for different markets where Tanzania has been granted/negotiated considerable market access that limit Tanzania exporters to fully exploit those opportunities or preferences; 3) To suggest specific measures to be undertaken by government and the private sector in order to access and exploit the identified market opportunities and constraints. 4) To create awareness of the business community on the existing export opportunities; and 5) To prepare Action plan for the implementation of the objectives. 1.5 Scope of the study The study focused on market opportunities available at bilateral, regional and multilateral levels particularly those markets which Tanzania has negotiated or given preference on market access. 1.6 Methodology The study was undertaken by a team consisting of experts from the Government and Private Sector. The study used primary and secondary data; including the following:- books, journals, magazines, reports from Ministry of Industry and Trade, Ministry of Finance and Tanzania Revenue Authority. Others were Doha Development Agenda Text, EAC and SADC Treaties and Protocols; National Trade Policy (2003), Sustainable Industry Development Policy ( ); Agricultural Marketing Development Policy (2008); Small and Medium Enterprise Development Policy (2003). The existing Bilateral Agreements, Tanzania Export Development Strategy, various literatures on information, cross border trade and Search engines via internet were also used. Furthermore this study used telephone interview to obtain information, from the key business people who are in the field of export particularly dealing with mentioned markets. 4

13 1.7 Sampling A total of 60 interviewees were grouped into six categories (manufactures, farmers, fisheries, mineral dealers, traders and exporters), based on micro, small, medium and large enterprises. Qualitative analysis was used to analyze the information obtained from the interview. 2.0 REVIEW, FINDINGS AND ANALYSIS Tanzania is currently participating in various bilateral, regional and multilateral trade negotiations in which various market opportunities are granted/accrued. These opportunities include: African Growth and Opportunity Act (AGOA), Generalised System of Preference (GSP), East African Community (EAC), Southern African Community Development (SADC), Economic Partnership Agreement (EPA) between the EAC and the European Union (EU). Other opportunities accrued from bilateral arrangements and at World Trade Organisation (WTO) level specifically, on those preferences available to Tanzania as Least Developed Country. 2.1 African Growth and Opportunity Act (AGOA) AGOA was signed by the Government of United States of America in The purpose of AGOA was to assist the economies of Sub-Sahara African countries (SSA) and to improve economic relations between US and SSA countries Market opportunities under AGOA The US government apart from granting market access to developing countries through Generalised System of Preference covering 4,800 products has expanded the opportunity to SSA by proving a Special Preferential Treatment (SPT) namely AGOA. The US-GSP is a program designated to promote economic growth in least developed countries by providing preferential duty free market access to 129 beneficiary countries including Tanzania. AGOA provides a Duty Free and Quota Free Market Access for over 1,800 designated products originating from SSA to the United States of America. Currently, there are 37 SSA countries benefiting from AGOA including Tanzania. Generally, the volume of trade between the US and the target countries has increased. However, exports to US from individual Sub Saharan African countries under AGOA 5

14 vary from country to country. For example, on average Tanzania exports under AGOA and GSP in the past seven years accounted for only 7.4% of the total Tanzania exports to US as the table shows below. This shows that there is a significant number of exporters who do not utilize AGOA preferences for various reasons. The reasons among others include the low preferential margins to various Tanzania exports such as minerals due to low rates charged by the US government under MFN treatment; currently raw minerals in US attract zero duty and semi processed only 5%. Tanzania Exports to US ( ) in million US Dollar Tanzania Total Exports to US Tanzania Exports under AGOA & GSP Source: BOT 6

15 2.1.2 Specific Challenges in utilizing AGOA and US-GSP Basing on the findings, those who are aware of the opportunity but not utilizing it, cited the following specific challenges: i. Expiry of the Multi-Fibre Agreement A multi fibre agreement basically was about quota restrictions on imports of textiles and garments which was bilaterally negotiated by countries and required a waiver from WTO. The quota restrictions helped least developed countries like Tanzania with less competitive textile sector access lucrative markets such as US by exporting to those markets at duty free and quota free. The Multi fibre Agreement expired in 2004 with an extension to 2007 as a transition period. An example of quota restrictions instituted by US Government during the existence of the Multi-Fibre Agreement is described below: When the agreement expired, countries with competitive textile sector such as China, India, Pakistan, Sri-Lanka and Turkey started to dominate the global market and weak exporters of textiles and garments became uncompetitive in the global markets particularly the US market. 7

16 ii. Difficult sophisticated regulations Difficulties in fulfilling US stringent regulations and requirements such as Sanitary Phytosanitary (SPS) measures and standards; iii. High scrutiny and documentation Tanzania products entering the U.S Market under AGOA preference go through various scrutinies by U.S government to prove originality of the products and thus have resulted into failure of timely delivery. This in turn has caused incontinences to US importers or agents and always resulted into unnecessary demurrage charges which are equally the same to paying taxes. iv. Inadequate accredited laboratories for standards Tanzania as a least developed country is facing various constraints including limited availability of internationally accredited laboratories for verification of various products standards which would facilitate trade and export in particular. v. US private standards requirements Apart from the US government set standards, US private sector also set their own standards which are higher than that of the government making it difficult for business people from Least Developed Countries like Tanzania to meet. vi. high transportation cost caused by long distance between Tanzania and US and the inadequate economies of scale The distance between Tanzania and US require exporters to ship large quantities when exporting so as to attain significant economies of scale and be able to secure reasonable amount of profit margin. But for the case of Tanzania, many exporters have been shipping small consignments and therefore the fixed cost per unit becomes unbearable to continue doing such business. vii. Stiff competition from Asian countries Cost of production in Asian Countries is much more less as compared to Tanzania in terms of labour cost and technology. 8

17 viii. AGOA is a unilateral agreement which does not encourage long term investment due to its unpredictability AGOA like EBA and the EU-ACP trade arrangements under Lome Conventions are discretionary offers by respective countries granted whereby the recipient does not negotiate any terms such as the time frame for lapse of the program. It is upon the recipient country to take the opportunity and utilise it. For the AGOA market opportunity, the time frame given is in short phases subject to reviews and therefore does not encourage planning for new huge investments. ix. Lack of trade representation in the US In generally, there is a lack of knowledge on the US market by many Tanzanians and moreover Tanzania doesn t have a trade expert in the U.S. Embassy in Washington who could be charged with the duty of collecting market related information and disseminate to Tanzania producers and potential exporters and link them with US importers. x. The end of the Third Country Fabric sourcing provision Lesser developed SSA countries including Tanzania are allowed to use non US Fabric and yarn in apparel wholly assembled in their countries and yet export to US market at duty free and quota free treatment. This provision was to end 2012 but through negotiation has been extended up to Everything But Arms (EBA) EBA entered into force in 2001 as an extension of the European Union Generalized System of Preferences (GSP). EBA is an initiative of the European Union which gives an opportunity to Least Developed Countries including Tanzania to export all products to the EU market at duty free and quota free with exception of armaments. The aim of EBA is to encourage economic development of poor countries through trade. Nevertheless, it has been reported by EU that EBA is not being fully exploited by the targeted countries as in 2007 the utilization rate was only 47%. The reasons for under 9

18 utilisation of EBA include the stringent terms of trade particularly on food products. On the other hand, the EU market for quite long period has been imperative export destination for Africa, Caribbean and Pacific countries and Sub Saharan African countries including Tanzania, however its magnitude now is declining as the table of statistics indicates below. Tanzania Exports to EU ( ) in million USD Year Tanzania Exports to EU Annual percentage increase or decline Africa Exports to EU 46, , , , , , , Annual % increase or decline Source: COMTRADE

19 Annual Exports Percentage Increase/ Decline Percentage Years Sub Sahara African Countries (SSA) Tanzania Specific challenges and constraints in utilising EBA EBA has not been fully utilised by most of Least Developed countries including Tanzania due to the fact that EBA is a unilateral agreement with: i. Strict Rules of Origin The Rules of Origin under EBA are sector specific and product specific and therefore quite cumbersome to be understood by a noble business man hence making it difficult to meet them. ii. Sophisticated standards and regulations such as sanitary Phytosanitary (SPS) measures and standard; iii. Heavy government supports to farmers in European Countries which makes Tanzania s product uncompetitive EU market. 2.3 Economic Partnership Agreement (EPA) EPA is a new trading arrangement between Africa Caribbean and Pacific (ACP) Countries and the European Union which replaces the former Lome Conventions arrangements. Under EPA unlike the Lome Conventions which was a unilateral offer given by EU, the parties are negotiating a reciprocal WTO-compatible trade agreement Market opportunities under EPA The envisaged opportunities of EPA are: i. Market Access offer which consists of duty free and quota free access for all EAC exports. 11

20 ii. iii. Predictability of the agreement which allow the ACP countries to plan for new investments and expansion Easy for ACP countries to access EU market as a result of negotiated terms of trade such as Rules of Origin and SPS measures. In the interim Framework of Economic Partnership Agreement (FEPA), the EU has revised its rules of Origin making it more favourable for ACP countries to export to its market; however this applies only to those countries which have initialled EPA. This is an indication that ACP countries can negotiate more favourable terms than the current provided ones. The specific areas of RoO revised by EU under FEPA include: Accepting single transformation on textiles and garments, Expanding the definition of wholly obtained for fish and agriculture by removing the requirement of fish to have been born and raised in the country of export or vessel used in fishing crew must be at least 50% local or EU nationalities. Accepting accumulation of production between EU and ACP which initialled EPA. Trade Facilitation Support in the ACP countries such as accredited laboratories, capacity building on traceability Specific Challenges of EPA The likely specific challenges of EPA for ACP countries like Tanzania are: i. Loss of WTO preferences. Under EPA, the ACP countries including LDCs are required to reciprocate market access preferences while under the WTO the LDCs are not obliged. ii. Local infant industries will face stiff competition from well established EU industries which may result into collapse of these industries. iii. Loss of Government revenues resulting from removal of duties on EU products iv. Reduction of investment flow from EU countries due to the duty free market access of the EU products in the country. Once products from EU countries can enter in the country at free duty, producers of those goods cannot think of 12

21 investing in the country on those goods simply because their products can compete in the market. 2.4 East African Community (EAC) The East African Community was established in 1999 and came into force in The Treaty for the establishment of the EAC states that, The Partner States undertake to establish among themselves a Customs Union, a Common Market, subsequently a Monetary Union and ultimately a Political Federation (Art. 5.2). Among the main objectives of establishing the East African Community is to promote economic growth of the partner states through intra regional trade Market Opportunities under the EAC Since 2010, the East Africa Community has entered into the level of Common Market which provides a number of opportunities as follows: i. Expanded market The East African Community provides to the Partner States the expanded market of more than million people, combined GDP of USD 79.2 billion (Market Price) and per capita income of USD 685 by This allows producers of goods and services to expand their production capacities and therefore attaining economies of scale. ii. Free movements of goods and services Free movement of goods and services calls for elimination of tariffs, non-tariff barriers, regulations and restrictions hence increase exports. Currently, over 1400 East African standards and conformity assessment procedures have been harmonized and Partner States have agreed on the recognition of quality standards marks. This effort has resulted in the reduction of delays at the points of entry at the border posts. This together with other factors makes it easy for the business persons to trade across the boundaries of the Partner States. 13

22 iii. Free movement of factors of production The freedom of factors of production such as labour and capital across the region provides an opportunity for Tanzania to work and invest in other EAC Partner States in areas of services such as banking, insurance, consultancy. It is possible for Tanzania to start exporting services to the Member States Tanzania Trade in East African Community (EAC) Tanzania exports to EAC Partner States generally have recorded an increasing trend from USD million in 2007 to USD million in 2010 which is equivalent to 91.5%. Kenya is the main Tanzania export destination in the region, for example, in 2010 exports to Kenya accounted for 53.4 percent of the total Tanzania exports to EAC partner states. However, exports to Uganda have declined from USD 89.1 mill in 2009 to USD 60.4 million in 2010 which is equivalent to 32.2 percent; apart from other reasons the decline is being attributed by the extension of Uganda list of raw materials. Tanzania Exports to EAC Partner States (Mil. USD) Country % increase ( ) Kenya Uganda Rwanda Burundi Total exports Source: EAC Facts and Figures Report,

23 Tanzania Exports to EAC Countries (Mil. USD) Kenya Uganda Rwanda Burundi Source: East African Community Facts and Figures, Specific Challenges in utilizing EAC market From the findings (both desk and interview), the following challenges were revealed: i. Duty exemption regimes such as the Uganda list; Kenya-TREO Exemptions of import duty on some products of industrial inputs for example Uganda and Rwanda lists cause unfair competition in the region. Products produced in Uganda and Rwanda from exempted industrial inputs are cheap, hence making Tanzania s products uncompetitive in Uganda and Rwanda markets. ii. Re-location of industries Removal of border tariffs (customs duties) in EAC and high cost of production in Tanzania have caused re-location of industries which invested in Tanzania like Mukwano Industries from Uganda and Unilever from Kenya. This has reduced Tanzania exports which were being produced by these industries. 15

24 iii. Un-harmonized standards and procedures While the EAC Partner States are in the process of harmonising products standards, the speed of the process is low as only 1,400 have already been harmonised out of around 6000 products. Moreover, inadequate mutual recognition of standard marks from Partner State Bureau Standards have acted as impingement to the smooth flow of trade in the region. iv. Border post inconveniences Existence of multiple institutions dealing with export procedures at border customs points such as TBS, TFDA, TRA and Chief Government Chemist and shorter working hours compared to other Partner States on similar institutions cause a lot of inconveniences particularly delays for exporters. 2.5 Southern African Development Community (SADC) SADC was established in 1992 by the Treaty of Windhoek, replacing the Southern African Development Co-ordination Conference. The main objective of SADC is to accelerate Member States' economic growth, investment, employment and balanced intra-regional development. The SADC Protocol on Trade is part of the SADC s larger programme of regional cooperation, which seeks to benefit all member states by contributing to economic development in Southern African. The SADC Protocol on Trade has been in effect since It is an agreement between SADC member states to reduce customs duties and other barriers to trade on imported products from each other. The objectives of the Protocol on Trade are: to liberalize trade and create a free trade Area and favorable conditions for investment; to ensure efficient production within SADC, reflecting current and dynamic comparative advantages; and to enhance the economic development, diversification and industrialization of the region Market opportunities under SADC SADC is now implementing Free Trade Area (FTA) agreement which was launched on The SADC FTA provides the following opportunities: 16

25 i. Expanded market of more than million people with a combined GDP of USD 471 billion (Market Price) and per capita income of USD 1,827. ii. All tradable goods within the region will be duty free effectively from August, However, due to some reasons, Angola, Malawi and Democratic Republic of Congo among SADC countries are yet to fully implement the protocol Tanzania exports to SADC Countries Exports of Tanzania to SADC countries show an encouraging trend. In 2008 exports to SADC were USD million compared to USD million in 2010 which is an increase of 29.3%. South Africa is the main Tanzania export destination in the region, for example, in 2010 exports to South Africa accounted for 60.8% of the total Tanzania exports to SADC member states. Other important exports markets of Tanzania in SADC are DRC, Malawi, Zambia, and Mozambique. Tanzania Exports to SADC countries ( ) in 000 USD Country % Change ( ) Angola 1, , Botswana , (19.0) DRC 144, , ,934.0 (1.9) Madagascar 3, , , Malawi 49, , ,889.3 (17.6) Mauritius , , Mozambique 33, , ,350.3 (46.0) Namibia , Seychelles , ,007.9 South Africa 265, , , Swaziland , , Zambia 47, , , Zimbabwe 1, , , Total Exports 549, , , Source: UNCONTRADE 17

26 Tanzania exports to SADC Countries (Values in 1000 USD) Source: UNCOMTRAE Specific Challenges in utilising SADC market There are several constraints and challenges that prevent Tanzania to increase exports to SADC member states. The main challenge complex Rules of Origin (RoO) which are product specific which make it difficult for exporters to comply therefore discourages Tanzania exporters to utilize the market opportunity. 2.6 World Trade Organization (WTO) WTO is an international organization that governs the rules of trade between nations and it was established on Currently, WTO has 153 member countries including Tanzania. The main objective of WTO is to ensure smooth, predictable and free trade flow between members. Its function include administering of WTO trade agreements; provide forum for trade negotiations; handling trade disputes; monitoring national trade policies; provide technical assistance and training for developing countries. As a least developed country member of the WTO, Tanzania enjoys a special dispensation with respect to some of the WTO Agreements such as longer implementation period of some of the agreements. 18

27 Furthermore there are two main principles of non-discrimination in WTO law, the Most-Favoured-Nation principle and the National Treatment principle. In simple terms, MFN prohibits a country from discriminating between members where National Treatment prohibits a country from discriminating against products from other countries Market opportunities under WTO The following are the opportunities that Tanzania gains in Multilateral Trading System. All WTO agreements contain special provisions for the developing countries including: i. Longer time periods to implement agreements and commitments, eg (LDCs have been given a general extension of transitional periods for the implementation of certain specific obligations (e.g. Article 66.1 of the TRIPs Agreement). This would in turn help in attracting investors hence increase exports in long run; ii. Measures to increase LDCs trading opportunities, Trade liberalisation, bindings bring security, transparency, MFN benefits, preferential market access, eg Generalised System of Preferences; iii. Support to help LDCs to handle trade disputes, eg : In March 1998, Tanzania raised concerns regarding trade restrictions by the European Union in response to a cholera outbreak in Tanzania, Kenya, Uganda and Mozambique. iv. Assistance to implement technical standards, eg Tanzania was assisted by WTO through STDF to implement Codex standards, Assist the Tanzanian horticulture sector to address SPS issues etc. v. SDT Provisions, these are Special measures in favour of LDCs which have to be implemented expeditiously and subject to regular reviews. These include commitments by other members to facilitate exports from LDCs by ensuring market access for their exports of goods and services and to take measures to assist LDCs to take advantage of these market access opportunities, including by providing the necessary technical and financial assistance. eg WTO Agreement on Agriculture article 20 that exempt LDCs from reduction commitments on domestic support or export subsidies and therefore Tanzania business community is in a position to be supported by the Government to boost exports. 19

28 vi. vii. viii. Under Article 9 of WTO SPS Agreement, Members agree to facilitate the provision of technical assistance, inter alia, in the areas of processing technologies, research and infrastructure, including in the establishment of national regulatory bodies, to allow such countries to adjust to, and comply with measures necessary to achieve the appropriate level of Sanitary or Phytosanitary protection in their export markets. Greater access to financial and technical assistance to overcome NTMs such as SPS and TBTs. Most-favoured-nation (MFN): treating others equally Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members. Each Contracting Party must grant to every other Contracting Party the most favourable treatment that it grants to any country with respect to imports and exports of products National treatment: Treating foreign products and local products equally Imported and locally-produced goods should be treated equally at least after the foreign goods have entered the market. It requires that imported and locallyproduced goods be treated equally. A straightforward example of a violation of the national treatment principle is the imposition of stricter technical standards for imported goods than for like domestic goods Challenges under WTO Since the conclusion of the Uruguay Round, WTO members have been continually working to enhance the participation of LDCs in the Multilateral Trading System through improved market access (e.g. the extension of preferential market access, dutyfree-quota-free (DFQF) market access, focussed technical assistance, extension of transitional periods and new commitments to deal with specific problems. 20

29 Despite the efforts done, there are challenges facing LDCs in utilising those opportunities: i. Preference on products with low or no interest Some of the preferences given by developed countries to LDCs are on areas or sectors which have no export potential to LDCs. Likewise a country may grant such preferences to products which they don t have interest to buy. ii. Underutilization of Preferences Although LDCs may be granted duty free treatment for all, or most of its products, these preferences are far from being fully utilized. For example, the EU has notified to WTO that the utilization rate under EBA was only 47 per cent by This is usually due to the stringency and or complexity of rules of origin and other related documentation requirements. iii. Low preferential margins The value of preferential access for LDCs is reduced by the extent to which competing imports from other sources also enter duty free or at very low rates either under MFN treatment, GSP, or from partners in FTAs or other preferential agreements. This situation made many LDCs including Tanzania to be uncompetitive in those markets. iv. NTBs and Standards The constrains in general that affecting the exports of LDCs have been identified as SPS regulations, particularly for the agricultural exports (e.g. fruits, vegetables, fish and fish products, wood and wood products), technical barriers to trade, consular formalities and documentation, anti-dumping measures, government purchases and subsidies, import licensing, transit procedures, marking requirements, tariff quotas and customs formalities. For example, during , Tanzanian fish exports (as well as those of Kenya and Uganda) were subject to a series of restrictions from the EC due to concerns over food safety controls, in particular regarding Nile perch. 21

30 2.7 Bilateral Cooperation Arrangements Apart from multilateral and regional trade arrangements, Tanzania is also engaging in various bilateral trade cooperation/arrangements with individual countries. The main objective of bilateral cooperation is to boost trade and investment with those countries through mutual cooperation. Through bilateral cooperation Tanzania as least developed country also benefits from preferential market opportunities provided by individual countries through Generalised System of Preference (GSP) or Special Preferential Treatment (SPT) like AGOA from USA, China, Canada, Japan, South Korea, and Turkey. Right after independence, Tanzania entered into bilateral trade cooperation agreements with various countries with a purpose of enhancing trade and market access for its goods and services as well as to attract foreign direct investments to stimulate country economic growth. Most of these agreements have expired and not renewed for various reasons some of them have been denunciated after a partner country joined to a regional block like the member states of European Union where Tanzania is trading with those countries under regional arrangements. Currently the existing bilateral Trade Cooperation Agreements include Algeria, Comoro and Turkey and those which are under negotiation include Mauritius, Egypt and Brazil. Basically, the existing Trade Cooperation Agreements do provide only a framework of cooperation particularly for mutual recognition and treatment on tradable goods and no tax reduction or exemption is involved. For the purpose of this study, few bilateral trade arrangements were selected according to their high potential for trade with Tanzania. These include: China China is among the emerging and fast growing economies in the world. It is expected in 30 years to emerge as the economic super power taking the place of United States of America. Apparently, ranks the second largest economy in the world after USA and has 22

31 achieved tremendous social economic progress in areas of agriculture, industry, science and technology. It is now widely acknowledged as world manufacturing powerhouse and technological giant. Market Opportunities in China Bilateral trade cooperation with China provides a number of opportunities including the following: i. Special Preferential Treatment (SPT) of Duty Free and Quota Free Market Access for 4720 items originating from Tanzania. The products which can enjoy the preference range from live animals, marine products, agricultural produces, minerals, leather and leather products. ii. The largest and fast growing market in the world. China iii. Less sophisticated market and less selective as compared to the Western markets in terms of standards therefore easy to access; iv. Established special fund known as China Africa Development Fund (CAD FUND) to support and encourage investments in Africa. The fund encourages and supports Chinese entrepreneurs investing in Africa which eventually promote exports. Trade with China Tanzania exports to China has been growing from USD 68.2 million in 2004 to USD million in 2010 which is equivalent to 496.6% This has mainly being caused by the Chinese open market policy and the market access granted to developing countries including Tanzania Export Statistics to China ( ) in million USD Year Exports to China Annual Percentage Increase Source: COMTRADE 23

32 Specific challenges in utilizing Chinese market include: i. Language barrier Majority of the Chinese do not speak English; however the young generation nowadays is learning English as business language and are being educated in Europe. Likewise, the Chinese language is not taught in African countries including Tanzania and that makes it difficult for the business people from both sides to communicate with a facilitation of translators; a service which is also expensive. ii. The distance The two countries are far apart from each other which has cost implication in terms of transporting goods. In order for a trader to get significant profit need either to export high value goods or ship goods in large quantities and attain the economies of scale. Cultural DiffrencesThe cultural difference between the two parties apart of being an opportunity on one side; it is a challenge on the other hand. It remains critical issue for an exporter to know the needs and wants of the Chinese market because of the divergent culture India India is one of the fast growing economies in the world. In 2000, Tanzania and India signed a Cooperation Agreement on Trade. The agreement provides a framework of cooperation on trade and investment areas between the two countries. In the same year, 24

33 Tanzania and India also established a Joint Trade Committee (JTC) to facilitate effective implementation of the Trade Agreement. The Joint Trade Committee members meet after every two or three years to discuss among others the implementation of the signed trade agreement and to identify new areas of cooperation that will foster increased trade and investment cooperation: Market Opportunities in India Bilateral trade cooperation with India provides a number of opportunities including the following: i. The largest and fast growing market in the world, ii. Less sophisticated market and less selective as compared to the Western markets in terms of standards therefore easy to access; iii. Duty Free Quota Free market access for processed cashew nuts, iv. Duty free-quota free market access for a total of 468 products originating from Least Developed Countries (LDCs) including Tanzania; v. Long historical trade ties between the two countries. Tanzania Exports to India Tanzania exports to India has been growing from USD million in 2004 to USD million in 2010 which is equivalent to 57.9%. However given the opportunities, the annual average growth rate of 8.3% for the last seven years was not adequate. 25

34 Challenges of exporting to India The main challenge is un-equal playing field as Indian government provides support to some strategic industries and therefore makes Tanzania s exports less competitive Turkey As a way of promoting bilateral trade and investment between Tanzania and Turkey, the two governments signed a bilateral Trade Agreement in 2004 and renewed it in The agreement is expected among other things to promote and strengthen bilateral trade and investment cooperation between the two countries. Market Opportunities in Turkey Bilateral trade cooperation with Turkey provides a number of opportunities including the following: i. Tanzania as a Least Developed Countries (LDCs) can export to Turkey Everything except Arms (EBA) because Turkey is a signatory to EU Custom Union; ii. Under the Preferential Regime of 2006 Turkey has provided Tanzania and other developing countries a Generalized System of Preferences granting duty free quota free market access. iii. Direct air flight from Dar es Salaam to Istanbul-Turkey. Tanzania Exports to Turkey Tanzania exports to Turkey has been fluctuating over the past six years, for example exports grew from USD 2.5million 2005 to 6.6million in 2006 and dropped to USD 1.8 million in However, given the opportunities and Tanzania existing potential exports can perform well from the current level. 26