Implications of the COMESA Free Trade Area and the Proposed Customs Union: An Empirical Investigation*♣

Abstract: Trade liberalisation and economic integration are central to the success of the Treaty establishing the Common Market for Eastern and Southern Africa (COMESA) regional trading bloc. COMESA’s liberalisation and integration programme boasts of a free trade area (FTA) launched in the year 2000 in which at least half of the twenty member states are currently participating. The regional bloc’s integration programme is envisaged to be taken further through the formation of a customs union via a common external tariff (CET) planned to be in place by end of 2004. This study provides a quantitative assessment of the likely implications of the implementation of the COMESA Treaty to establish the FTA and then form a customs union through the CET. The focus of the analysis is on the implications of the accompanying trade liberalisation on macroeconomic aggregates including those that have a bearing on poverty reduction; industry structure; welfare; and the trade diversion versus trade creation question. The study uses a multi-country multi-commodity applied general equilibrium model ⎯ GTAP (Global Trade Analysis Project) ⎯ in its analysis. The study sought to provide empirical evidence relevant to the policy debate on the following questions. First, what countries gain and which lose based on the impacts on GDP, employment and other macroeconomic aggregates from the FTA and customs union. Second, based on the empirical evidence of the resulting industry structure from the FTA and customs union formation, what can be said on the question of whether COMESA should proceed at its current speed to be a customs union considering that some of its members are also members of the South Africa