Southern Africa Customs Union (SACU): workshop by Trade Law Centre for Southern Africa (TRALAC)

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Trade and Industry

15 March 2011
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Trade Law Centre for Southern Africa gave a short background on the new vision and mission statement of the Southern African Customs Union, intra Union matters and the Union's extra-regional agenda which included South-South Relationships.

The Centre gave a second presentation focused on the definitions of customs unions and trade and industrial policy, and also touched on import tariffs, the Union, the tariff and industrial trade policy and policy implications and challenges.

The Centre explained legal implications of being a Union member and also defined customs union in terms of regulations, the Union and the Southern African Development Community developments, economic partnership agreements and what the Union meant for the South African Parliament.

Members raised their concerns on the role played by Parliament in the Union. They wanted more clarity on who was monitoring the Union's Council. The Committee wanted to know if there were constraints regarding the Union and what were the interests of South Africa in the Union. The Members were also concerned about the establishment of national currency and expressed scepticism on common currency.

Meeting report

A new vision for SACU
The Chairperson welcomed Ms Trudi Hartzenberg, Executive Director of Trade Law Centre for Southern Africa (TRALAC) who gave a short background on the Southern African Customs Union (SACU). Her presentation would touch on the new vision and mission statement of SACU, intra-SACU matters and SACU’s extra-regional agenda which included South-South Relationships.

SACU was established in 1910. A customs union was defined as a group of member states that had no import duties among themselves but had some import duties on products that came from other countries. This also meant that member states had a single customs union. It also meant that the member states had given up trade policy space. This meant that member states could not negotiate with third parties without the consent of other member states. Ms Hartzenberg stated that a free trade area existed when a member state reduced its tariffs to those of another member state to liberalised trade. This meant that there were no duties among the members. Member states decided on how to manage the revenues from the common external tariff. SACU Members had to negotiate with one voice as they had a single trade policy. This meant that all SACU members had same trade policy.

A new SACU vision was announced at the SACU centenary celebrations in April 2010.  This vision of SACU was focused on sustainable development as SACU had to be an economic community with equitable and sustainable development, dedicated to the welfare of its people for the common future. Some of the SACU mission objectives were to serve as an engine for regional integration and development, industrial and economic diversification, the expansion of intra-regional trade and investment and lastly global competitiveness. South Africa (SA) constituted the largest component of SACU’s economy and SA’s economy was diversified with an industrial base. Secondly, SACU had to build economic policy coherence, harmonisation and convergence to meet the development needs of the region and SA was the only member that had developed an economic policy. SACU also had to promote sustainable economic growth and development for employment creation and poverty reduction, and that was every member state's challenge.

SACU should serve as a building block for an even closer community of the peoples of Southern Africa and this broadened the scope of SACU in terms of regional economic integration in Southern Africa. The strong feature of the 2002 SACU agreement was that SACU had to develop common policy and strategies in areas such as trade facilitation and competition, and SA was the only member that had effective competition policy that was implemented. Council was the highest body of SACU and a resolution had been passed for institutionalisation of summits even though no summit had been held.

The 2002 SACU Agreement (SACUA) provided for institutions like; Secretariat, Tariff Board, Council of Ministers, Commission and others, common policy development and revenue sharing formula (RSF). Some of the issues that were in the SACU agenda were legal and institutional developments which were not yet launched. SA was required to develop an Industrial Common Policy. A draft report had been prepared for a Revenue Sharing Formula and was available and the recommendations and final report were to be considered by the Council in the April 2011 Summit.

Issues that had been raised in connection with review of the revenue sharing formula were the challenges related to the common revenue pool which had grown beyond expectations. Recommendations on a revised RSF ought to meet the compensation and development demands by member states.

All SACU Members were also members of Southern Africa Development Community (SADC). Consolidation of free trade area in SADC was still work in progress. 26 member states of SADC, East African Community (EAC) and Common Market for East Southern Africa (COMESA) agreed in 2008 to establish a Tripartite Free Trade Area (FTA) but negotiations had not started yet. SACU had strong focus on South-South partnerships, for example SACU and India.

In conclusion SA had to look at SA’s domestic development challenges and development agenda, regional strategy and South-South partnerships.
Trade Policy Making in a Customs Union
Mr Colin McCarthy, former Head of the Economics Department at Stellenbosch University, now an Associate of TRALAC, focused on the definitions of customs unions (CUs) and trade and industrial policy.

Mr McCarthy informed the Committee that Ms Hartzenberg covered almost all of his presentation in her presentation and apologised for that as it seemed that he would be repeating Ms Hartzenberg. He explained that he could not find time to meet with other delegates so they could discuss the structure of their presentation. Mr McCarthy also covered the definitions of CU and Trade and Industrial Policy, import tariffs, SACU policy implications and challenges.

Mr McCarthy stated that by definition and in accordance with Article 24 of the General Agreement on Tariffs and Trade (GATT), a Customs Union (CU) was associated with trade in goods. The Southern African Customs Union (SACU) was not only a CU but also an excise union which made SACU to be unique from other CUs as even Europe had no excise duty. He defined trade and industrial policy as an applied microeconomic economics, which meant that selective interventions by government to allocate resources to more productive use in an effort to address market failures had to be made.

Customs duties served as an instrument of industrial policy, providing protection against imported competing goods. In some other countries custom duties were important source of revenue. SA had always viewed tariffs primarily as an instrument of industrial policy. Policy documents like National Industrial Policy Framework (NIPF) and Industrial Policy Action Plan Second version (IPAP2) committed government to a refinement of the tariff structure, lowering tariffs ‘up-stream and a more careful strategic treatment of down-stream industries in implementing a developmental trade policy.

The SA tariff used the same policy instrument as SACU tariff and this also applied to imports going to Lesotho, Namibia, Swaziland and Botswana. In the past and currently, the institutional development tariff in all manifestations was managed by SA Agencies and this would change once there was full implementation of 2002 SACUA and the establishment of SACU Tariff Board that would take a decision on the basis of consensus. The Tariff Board would consist of members nominated by member states. Article 38 of SACUA committed all member states to the development of common industrial policy.

Mr McCarthy thought that some of the policy implications and challenges were a bit provocative, for example, how one reconciled the diverse development needs of disparate economies, with SA producing 94% of SACU GDP while member states were committed to develop common industrial policies.  He believed that a common vision had to be adopted in order for one to reconcile SA’s need to use the SACU tariff and derivatives as instruments of industrial policy with the Botswana, Lesotho, Namibia and Swaziland  (BLNS) countries emphasis on the tariff as a source of revenue, and this had to be within the context of consensus decision-making by the Tariff Board and council. Mr McCarthy could not work out how the new dispensation of an independent Tariff Board responding to submission of member state national body was going to work.

He concluded by stating that SACUA was a constraint on South African Industrial Policy Space. He wanted the Committee Members to ask themselves if SACU had a workable SACUA in place, not in revenue distribution mechanism but also in other elements. He also raised a question of how could SACU expand its trade in goods to include services especially bearing in mind the role of monitory integration through the Common Monitory Agreement.

Mr McCarthy asked the Committee to forward him with feedback as he had to leave immediately after his presentation due to personal problems.

SACU’s Legal and Institutional Matters
Professor Gerhard Erasmus, Tralac, stated that it was important to deal and look at the legal and institutional dimension of SACU because of its powers and legal relationships that were involved. CU was an international legal person meaning it could sue and be sued and had certain legal powers. The World Trade Organisation (WTO)'s basic rule was non discrimination against international trade.  A single customs territory meant that there were no international rules of origin unless in the matter of third parties.

2002 SACUA had a number of institutions like a council of ministers which was the highest form of decision making body, as stated by Ms Hartzenberg. Some of these institutions were not yet fully consolidated and once they were consolidated they would create a possibility of expanding the scope of SACU. Professor Erusmas explained that legally a member state could not be a member of more than one CU but a CU could expand or merge with other CU.

One of the institutions of the SACU was the Secretariat the role of which was to co ordinate infrastructure support and organise meetings. The new SACUA had a permanent secretariat in Windhoek Namibia. The SACU summit that was scheduled for April 2011 would consider the institutionalisation of ad hoc summit. One of the weaknesses of SACU was the lack of identity of the institution that was speaking on behalf of the union. As  already stated,  all SACU members were SADC members; this created overlapping between SACU and SADC.

Professor Erasmus mentioned that there was uncertainty as to whether the SADC trade regime was rules-based. In the bigger picture SACU faced problems that consisted of interrelated aspects, overlapping membership consequences and lack of clear rules. Tripartite Free Trade Association (FTA) was still in the early stages and it was difficult to state who was going to negotiate and behalf of whom as negotiations had not started.  Economic Partnership Agreements had been WTO compatible.

Professor Erasmus explained that the SA Parliament had an oversight function on SACU. He suggested that SACU could facilitate debates. He also stated that SACU description had to fit in the global multilateral picture and had to comply with its internal rules. SACU rules had to be determined as legal by comparing them to the legal instrument like Tribunals that dealt with the lawfulness of SACU, implementation agreement and interpretation and this could only happen once the Tribunal was established and recognised. 

Mr S Ngonyama (COPE) wanted to know who was monitoring the SACU and SACU Council.

Ms Hartzenberg explained that each member state had to collect data of imports at its border and that was a challenge as all imports coming to member states came via SA as other members had no ports. It was worse for Lesotho because Lesotho was a land locked country, so the data could not add up as it showed that almost every import was from SA even though it came from other countries.

Mr G Selau (ANC) wanted to know the role of SACU member states' parliaments in the development of SACU policies. He also wanted to know if the documents referred to in Ms Hartzenberg's presentation were accessible. Lastly he wanted clarity as to who was monitoring SACU, as Mr Ngonyama had asked.

Ms Hartzenberg explained that Parliament was involved when international agreements needed to be ratified and this was rather late in the Trade Policy making. Legal role for Parliament was extremely important in the implementation process.
Mr X Mabaso (ANC) wanted clarity as to whether SA could draw competitive experience from other CUs.

Ms Hartzenberg stated that a CU was unique and quite rare internationally. SACU had a unique comparative experience which was not possible to replicate so it was hard to compare it to other CUs.

Mr B Radebe (ANC) wanted to know consequences of Members of SACU that had undermined the coherence of CU in relation to interim agreement between SACU and other third party countries or the African Union.

Ms Hartzenberg explained that when they looked at the members of CU they focused at partnership negotiations with third parties and informed the Committee that there were many extensive preparations to be done before the negotiations.

Ms September (ANC) first mentioned that SACU was almost the same age as the African National Congress (ANC) and stated that in her opinion it seemed that there were difficulties within SACU countries regarding SA’s industrial policies, so she wanted to know to the extent of these difficulties.

Ms Hartzenberg explained that all SACU members were SADC members. as a result some analysts said that SACU was the core of SADC and there were SADC members who wanted to join SACU.

A Member wanted clarity as to whether there were regulation governing the use of revenues given to member states as other states lacked democracy. He also wanted to know why Botswana had a different agreement with SA from that between SA and Lesotho, Swaziland and Namibia in the case of exchange rates.

Ms Hartzenberg informed the Committee that small countries were very dependant on the revenues and even though there were conditions to the revenues those conditions did not regulate what the countries should spend their revenues on. She also stated that all SACU member states except Botswana belonged to the common monetary area which meant that the rand was used in those countries except in Botswana, for which reason Botswana had a different exchange rate agreement.

Mr Ngonyama stated that there were adverse effects of RSF review that happened in small SACU countries recently. He wanted to know how much impact was caused by those effects.

Ms C Kotsi (COPE) wished that SACU was already integrated in SADC as she believed that SACU would had strong power if it was at SADC level, because issues that Ms Hartzenberg mentioned like SACU's decision making worked very well in SADC.

Mr McCarthy informed the Committee that SA was the giant of both SACU and SADC and some analysts saw SACU as a stepping stone in furthering SADC.

Ms B Ntuli (ANC) corrected Mr McCarthy on the assertion that ITEC was now reporting to the Department of Economic Development (EDD) instead of Department of Trade and Industry (DTI); she informed Mr McCarthy that ITEC reported to both Departments depending on certain aspects.

Another Member, who attended the workshop but left immediately after he asked the question, wanted clarity as to what were the constraints of industrial policy space and what were the reasons for those constraints.

Mr McCarthy explained that SA could not independently decide on the tariff without notifying other member states but it could investigate and report its finding and its recommendations to the tariff board. The tariff board had to recommend the member states' findings on its investigation to the Council.

Ms S Van der Merwe (ANC) wanted to know SA’s interests in SACU

Mr McCarthy stated that SA’s interest were obvious as SA’s market was also a national market for SACU because SA exported many goods to Africa but imported little.

The Chairperson suggested that SACU had to use a linear approach when dealing with the revenue sharing formula. 

Mr Selau wanted to know the 26 countries that were involved in the Tripartite Free Trade Area. He also wanted clarity of the consequences of being a member of more than two CUs. He asked Professor Erasmas to give reasons for reserving his opinions regarding common currency.

Professor Erasmas explained that he was a great supporter of liberalising trade but believed that the ambition of common trade was unrealistic at that moment as it would take quite a while to put all rules of different member states under one umbrella. He also informed the Committee that before a common currency could be established we had to look at the challenges facing each member state.

Mr Radebe asked Professor Erasmas as an independent person to give his views on common currency taking into account political and economic factors.

Professor Erasmas explained that common currency in United States of America (USA) was working because USA was a single state and USA and other European countries were at a level where a common currency could work without hindrances.

Mr Ngonyama wanted to know if there was a room for member state citizen participation in the Tripartite FTA, if Tripartite FTA had regional policy and if the Tripartite FTA had time frame for its establishment.

Professor Erasmas stated that some members of the Tripartite wanted it to be finalised by the end of 2011 while others thought that its establishment needed more time. SACU did not have a policy as it was still in the debating stages and those debates did not constitute policy, as it did not have a platform to convert debates to policies.

The Chairperson thanked everyone who attended the workshop and thanked the delegates for their informative presentation. She apologised for not giving more time for discussion and not opening the platform for general discussion. The Committee did not have enough time because the meeting started late and some Members had to leave because they had other work commitments.

The Chairperson also reminded the Members to honour their commitment to the Committee by attending the meeting that was scheduled for Friday, 18 March 2011.

The meeting was adjourned.

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