Assessing potential economic costs and benefits from a Zimbabwe-China Free Trade Agreement

Abstract

This study investigated the potential impacts of the formation and implementation of a Zimbabwe-China Free Trade Area (FTA). The study employed the World Integrated Trade Solution (2015), Software for Market Analysis and Restrictions on Trade (WITS?SMART), to investigate the potential impacts of the FTA on exports, imports, tariff revenue and the overall welfare in Zimbabwe. The findings were that $44.39 million worth of new trade will be created with China while around $34.9 million trade will be diverted resulting in a positive net trade effect of $9.49 million for Zimbabwe. The results also suggest that Zimbabwe will lose around $44.68 million in tariff revenue. The study recommends that if Zimbabwe is going to commit itself to trade liberalization with China, it will have to come up with a new fiscal revenue base to compensate for the loss in tariff revenue. This can be done through putting more emphasis on non-trade taxes revenue sources as well as putting in place efficient fiscal revenue collection mechanisms. The study also recommends that since the FTA is also likely to affect welfare through employment losses welfare losses in Zimbabwe as imports from China will displace local production, there is need for undertaking adjustment programs that enhance skills and productivity in order to facilitate the relocation of labour into sectors where production will be expanding as a result of the FTA.