SACU – Time for Change?
Trudi Hartzenberg
trudi@tralac.org
18 May 2010
Agriculture Trade Forum - Windhoek
Overview
• Background
• Historical perspective
• What are the challenges
• Possible future developments
• Implications
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Background 1
• SACU dates back to the formation of the Union of South
Africa (following the South African war 1899 – 1903); the
Cape Colony, Natal, the Orange River Colony and
Transvaal were joined as the four provinces of the Union.
They were just four of many more British controlled
territories in Southern Africa.
• Several customs union arrangements preceded this:
including the customs union between the Orange Free
State and the Colony of the Cape of Good Hope (1889); in
1906 South African Customs Union was formed (Cape
Colony, Orange River Colony, Transvaal, Natal, Southern
Rhodesia,
North-Western
Rhodesia,
Basutoland,
Bechuanaland Protectorate, Swaziland) – all except Natal
and Cape were under the British flag.
• Establishment of the Union required an alignment of
customs arrangements
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Background 2
• Two Agreements were concluded:
1. Union, Southern Rhodesia and North-Western Rhodesia
2. Established SACU: Agreement between the Union and the High
Commission Territories (Basutoland, Swaziland and the Protectorate of
Bechuanaland) – basic uniform 15% ad valorem duty was adopted,
managed by South Africa with distribution which left 98.7% for South
Africa, with shares for the smaller territories remaining the same until
1965 (then adapted at the cost of Basutoland in favour of Swaziland
and marginally Bechuanaland)
The 1910 Agreement remained in force until the independence of the
HCTs, re-assessment resulted in the 1969 Agreement (independent
Swaziland, Botswana and Lesotho held that they were not getting their
fair share of the revenue collected and the effect of trade diversion
resulting from a tariff designed to favour RSA’s industrial development).
The 1969 Agreement specifically made provision for the development
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of the smaller states.
In Summary
Establishment of SACU – was not an agreement by independent,
sovereign states
Successive agreements reflect the need to adapt to changing political
environment
1910 – Union of South Africa established
1969 – Independence of HCTs
2002 – Post-apartheid democratisation of SACU management
(Negotiations:1994 – 2002)
Since 1969 plagued by persistent disagreement between members
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Where to Now
Both CU and FTA agreements (GATT Article XXIV compliant) focus
exclusively on trade in goods
A CU is distinct from a FTA - free intra-regional trade behind a common
external tariff. This requires:
•Agreement on guidelines for using the tariff as an instrument of
industrial policy
•Agreement on the weight attached to revenue and on the fairness of
the distribution of CU revenue
•Effective participation in CU organs (Tariff Board, etc) to manage the
tariff and distribute the revenue
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Update – Current Situation
Distribution of revenue, customs in particular, favours BLNS
Provides for ambitious organs in support of SACU as a rules-based
arrangement
Decisions in strategic organs (Tariff Board and the Council) are made on
the basis of consensus
Established as a legal entity with status of an international organisation
(Article 4), with a common negotiating mechanism to be established
and a clear determination that no member state will enter into new
trade agreements without the consent of other member states (Article
31).
Tariff Board and the National Bodies of BLNS not yet operational with
ITAC still serving as the SACU Tariff Board
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Challenges
No progress yet:
Implementation of Article 38 on common industrial policies; use of the
tariff in its broadest sense (including rebates) as development
instrument, taking into account:
•Disparities in economic development while addressing the ‘small
economy’ constraint facing BLNS
•Differences in CU expectations, notably BLNS emphasis on revenue
and SA on industrial development
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Challenges
Revenue Sharing Arrangement:
• What options for dealing with revenue dependence? Eg
Lesotho’s limited options ito other revenue sources.
• SACU revenue serves as a potential mechanism for adjusting to
external shocks in a fixed exchange rate (CMA) regime.
On South Africa’s part, what is responsible regional politics?
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Challenges
Collective CU management with unequal capacity to manage SACU on
the basis of equal participation.
Is the principle of consensus decision-taking workable given the
disparities between economies and their diverse interests?
Negotiations on a new SACU Agreement began in 1994 in the euphoric
climate of a newly democratic SA with the aim of revamping an
apartheid-era relic – Where are we now?
Is it possible that the 2002 Agreement itself could be the undoing of the
oldest Customs Union in the world?
It is clear that change is imminent!
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When push comes to shove…
Current pressing issues:
1. Revenue
2. EPA negotiations
3. South Africa’s position: SACU is compromising its policy space
(revenue transfers to BLNS, strategic tariff policy to support
industrial development (priority job preservation and creation), SACU
institutions are seen as impediment to domestic policy priorities)
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What now?
SACU celebrates its centenary (April 2010):
- First meeting of Heads of State and Government (commitment to
meet again at end of July in South Africa)
- Communiqué (New Vision and Mission; SACU as a building block for
deeper integration in Southern Africa….. Renegotiation of
Agreement…..)
Possible scenarios:
i) Implementation of 2002 Agreement, expand coverage to include eg
services, expand SACU as core of SADC, renegotiate revenue sharing
formula and perhaps other provisions too?
ii) South Africa withdraws from SACU (provided for in 2002 Agreement,
however process is prescribed, and WHAT WILL BE THE POLITICAL
FALL OUT?)
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iii)Downgrade to FTA
Implications?
i) Based on Final Communiqué (at centenary celebrations)
Implementation of Agreement, a Summit for SACU, expansion of
coverage, common policies (trade facilitation and competition),
renegotiation of revenue formula
ii) South Africa withdraws from SACU (Article 49) – time frame, political
fall out?
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Implications?
iii) Downgrade to FTA - what will be the implications?
- WTO issues (SACU has been notified to the WTO)
- SADC issues (SACU tariff…. SACU as a building block for deeper
integration no longer holds as this is a retrogressive step)
- Disbanding SACU…. Current negotiations (EPA, India….)
- National level implications (revenue issues for BLNS….)
Regional development fund: funds from where? Regional policy/ies?
Access to funds? How and by whom will such a fund be managed?
Transition…….how long?
What can BLNS do? Assessment of national priorities, options,
challenges, engage (not just on revenue matters)….
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