ABSTRACT
Mozambique has been implementing a gradual process of trade liberalization since the start of its Economic Rehabilitation Programme in 1987, when market-oriented economic reforms were first introduced. On the import side, duty rates have been lowered and harmonized into five advalorem tariff bands from 0 to 20 per cent. On the export side, the country is eligible for non-reciprocal duty-free access into most developed country markets for most products (for example through the European Union’s Everything but Arms scheme or the United States’ African Growth and Opportunity Act [AGOA] concessions). During the same period, Mozambique has also demonstrated a commit-
ment to regional integration in Southern Africa by participating in the SADC Trade Protocol, which led to the creation of a free trade area among a dozen countries in Southern Africa in 2008 (with certain product-specific exceptions until 2015). The country has separately been invited to join the five-member Southern Africa Customs Union (SACU).1 Both SADC and SACU include South Africa, which is by far the largest and most advanced economy in sub-Saharan Africa, as well as Mozambique’s largest, most diversified and most consistent trade and investment partner. The government of Mozambique is now presented with strategic options
for its trade policy. It can decide to continue implementing only the SADC Trade Protocol, leading to a free trade area in the region; it can advance towards a customs union through SACU; or it can accelerate the process of unilateral liberalization on a Most-Favoured Nation (MFN) basis for all trade partners worldwide. The purpose of this chapter is to estimate and discuss the expected impact
on Mozambique’s trade and revenue flows, as well as on welfare, of reforming international trade under these different policy scenarios. A simple static partial equilibrium methodology is used, in order to disentangle the reform impact at the product-specific level. Product-specific estimates show where, and in what way, most of the gains and losses from granting trade preferences are likely to be concentrated, so they can help trade negotiators and
policy makers to design trade and fiscal policies to maximize the benefits while minimizing the losses. The chapter does not focus directly on the impact on exports, mainly due
to the fact that Mozambique is already eligible for duty-free access for most products in most of its important partner country markets (including South Africa and the European Union, EU), so no additional tariff reductions are possible. Nevertheless, the chapter does discuss briefly the likelihood that regional integration would have a positive impact on exports through different channels: increased foreign investment, the elimination of non-tariff barriers or the elimination of rules of origin, especially in the case of a customs union. The chapter is organized as follows. Section 2 describes the context of
trade policy in Mozambique and the existing tariff and tax structure. Section 3 briefly illustrates the partial equilibrium methodology employed in the analysis. Section 4 summarizes the main results from the estimations. Section 5 discuses the revenue implications of the different trade reform scenarios considered. Section 6 analyses the main implications for trade and tax policy of the results of the chapter. Section 7 concludes with policy implications of the results and a list of issues for further research.2
