Africa: Removal of Trade Tariffs Not Solution for Continent

Source from:  New Vision (Kampala) 28 January 2008 01/31/2008

REFERENCE is made to the article titled "African Governments Should Remove Trade Tariffs", published in The New Vision, January 9. Removing trade tariffs is no solution to Africa's problems; it cuts government revenue, worsens trade deficits and poverty. In May 2007, the Uganda Revenue Authority (URA) collected sh228b of which sh122b was from imports. Without import duties levied, especially on finished goods that are also produced in Uganda and ostentatious goods, how will government fund roads, hospitals, drugs and arms without donors? Whereas Europe can depend on indirect domestic taxes levied on red light districts, casinos, tobacco and alcohol, Uganda cannot remove import duties because its per capita income is less than $400 meaning that less than 1% of all Ugandans have entered a casino. Uganda has an increasing trade deficit of sh$1.4b. Trade deficits cause massive lay offs as imported goods subject domestically produced goods to competition, forcing sub-optimal capacity utilisation and laying off workers. This malignant tumour in the Ugandan economy is the reason why impressive growth rates have not translated into better welfare for many Ugandans (Gross Domestic Product is an inverse function of the trade deficit). Removal of import duties will encourage consumption of imports, worsen the trade deficit, jobs will be lost and markets for agro produce will dwindle. Poverty will worsen. Before import duty is removed, consumers should have sufficient purchasing power to spend and pay indirect taxes without the consumer feeling the tax burden. This requires industrialisation. In fact, Europe's industrial development was shaped by fierce protectionism called "Fortress Europe" during which Britain levied an average tariff of 32%, France developed its current agricultural protective system, Bismarck dumped the German Free Trade Policy and average industrial tariffs stood at 19% in Europe. More so, Intra-African trade liberalisation needs a cautious approach since the EU has already signed free trade areas with leading African economies such as South Africa and Egypt. Removing tariffs on goods from South Africa in the absence of appropriate rules of origin means offering the EU duty free market access to Uganda yet "EU" has no offensive trade interests in Uganda. Why offer a lift to a rich man who has several Rolls Royces? The principle of asymmetry has to come into play when discussing removal of trade tariffs and any other trade controls in Africa. Some countries are at higher levels of development because of advantages bestowed upon them by European colonial masters. Full and immediate liberalisation of trade with such countries can only mean jobs lost in Uganda. In lieu of liberalising Africa's trade, if the EU is interested in enabling Africa to benefit from world trade, the EU must compensate Africa for the damaging effects of liberalisation implied in the Economic Partnership Agreements. Africa's true allies will not be those who impose liberalisation but those who help Africa adjust to the liberalisation by solving its supply side constraints, for example, building the big dam in neighbouring Congo (The dam could reduce the cost of power in Central and Eastern Africa by 50%), building an alternative route for Uganda's imports through Tanzania. These projects have been identified by Africa and are contained in the development matrix of the Economic Partnership Agreements Negotiations. It is unfortunate that the EU agrees to the development matrix but hates a detailed one that identifies the costs and exact projects. Africa seems to know its problems better now. Liberalisation is surely not the solution to our problems. Enditem