Southern African Customs Union Agreement: briefing

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Trade and Industry

15 April 2003
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TRADE AND INDUSTRY PORTFOLIO COMMITTEE
16 April 2003
SOUTHERN AFRICAN CUSTOMS UNION AGREEMENT: BRIEFING

Chairperson:

Dr R Davies (ANC)
Co-Chairperson: Mr Tolo (ANC)

Relevant document
 

Powerpoint Presentation by Director of SACU
Presentation by BTT on Agreement clauses (see Appendix 1)
Briefing By DTI on ratification process (Appendix 2)
Committee Report on Hearings on Development Funding for State Institutions and NGOs
Challenges facing SACU in preparation for the next round of negotiations

SUMMARY

Activity

Completion By

1 Finalisation of a draft Annex on
SACU Tariff Board.

  • Compilation of a draft annex.
  • Identifying key issues to be captured in the annex.

·

First week of February 2003 (draft text available already)

2. Consultations with the BTT NDA, SAPS and National Treasury on the Annex.
Meeting with the stakeholders mentioned above.

·

Assessment and consolidation of stakeholders' inputs into a common approach.
· Distribution of consolidated report for final check by stakeholders.
· Briefing to the Minister and feedback.

End of February 2003
 

3. Consultations with the BLNS through

· End of April 2003 the SACU Commission of Senior
Officials and Council of Ministers.
· Discussion with SACU Commission of Senior Officials
· Submission of the Annex to SACU Council of Ministers.

 

4. Initial briefing to the Parliamentary

Committee on Trade and Industry
 

16 April 2003
 

5. Public hearings on the Agreement

and the annex.

13 and 14 May
 

The above proposal entails an accelerated and intensive programme of activities and is highly ambitious given the complexity of the consultations.

5. PROGRESS TO DATE

Two priority and critical annexes to the Agreement have been identified and are being developed in consultation with domestic stakeholders (BTT, SARS, NT and NDA) and our BLNS partners.
 

· · The annexes deal with the SACU Tariff Board and National Bodies and address the issue about turn-around time (that is, the speed and efficiency of decision-making regarding tariff applications and trade remedies).
· Procedures and timelines from the time an application is filed with the
National Body up to a point where the SACU Council of Ministers make a
decision are being spelt out in the two annexes. This is being done for the
various categories of applications (e.g. safeguards, anti-dumping)
· The annexes also address the standardisation of procedures and documentation, co-ordination and communication of investigations, decision-making processes, decision-making parameters and varying levels of development. Agreement on the need to these has been reached amongst the stakeholders,

 

The Heads of Governments of Member States signed the new SACU Agreement on 21 October 2002 in Botswana. This new Agreement replaces the current Agreement of 1969, which established the Southern African Customs Union. Following the signing of the new Agreement, Member States committed themselves to ratifying it as a matter of urgency. To date, the only Member State that has not yet ratified, is South Africa. The Committee heard that this is because issues of efficiency and speed in processing tariff applications, need to be resolved, before South Africa can make ratification.

MINUTES
Southern African Customs Union (SACU) presentation
Mr S Mogapi, Director for SACU, delivered the Powerpoint presentation on the new SACU Agreement (see document). One of the new provisions of the Agreement, was to give the SACU new legal status. There is also provision made for the accession of new members to the body.

According to terms of the new Agreement, provision has been made for the establishment of the following bodies:
- Council of Ministers, which would consist of at least one Minister from each Member State, and would be the supreme decision-making authority on SACU matters.
- Customs Union Commission, constituted by senior officials from Member States.
- Secretariat, which would be critical in terms of providing technical and professional support to the SACU institutions
- Tariff Board, which would be one of the most important institutions of the SACU in terms of tariff remedies and applications
- Technical Liaison Committees, of which there are four: Agriculture, Customs, Trade and Industry, and Transport. These will assist the Commission in its work. More Committees may be added, if necessary
- Tribunal, an ad hoc committee, which would look into complaints by Member States
- National Bodies, to receive applications for tariff changes, or other related issues.

The "Final Provisions" section deals with the establishment of annexes, which will become an important part of the Agreement.

Agreement objectives and clauses
Ms Palesa Moitse, Director: Trade Remedies II, Board on Tariffs and Trade, stated that the key objectives of the Agreement were:
- to promote conditions of fair competition; to substantially increase investment opportunities in the Common Customs Area;
- to promote the integration of Member States into the global economy;
- to promote the equitable sharing of customs and excise revenue; and
- to facilitate the development of common strategies and policies.

She added that membership to the body would not be confined to those presently in membership.

Part 5 of the Agreement deals with trade liberalisation, which underpins international norms and standards, including the relevant WTO agreements. It seeks to ensure the free movement of goods within the Common Customs Area, as well as goods imported from outside, on a non-discriminatory basis.

Ratification Process by South Africa
Mr Xavier Carim (Chief Director: Trade Negotiations, International Trade and Economic Development) mentioned that, in relation to South Africa, the constitutional processes of the BLNS countries are much more streamlined and simple. Since the previous week, all the BLNS countries had ratified the SACU Agreement. SA's own constitutional processes are much more complicated, and ratification would therefore take longer. In 2002, a number of concerns were raised by business and labour representatives. The main consideration was that the establishment of the Agreement would delay the process of tariff applications. This would disadvantage firms who were seeking for quick relief from financial burdens.

He continued that the Board on Tariffs and Trade (BTT) is attempting to improve the internal processes which would speed up the time taken on tariff applications, and here financial costs would be incurred. They want to drive very tight procedures and time frames between the time an application is filed with the National Body, to the point where the SACU Council of Ministers make a decision.

These issues, though not addressed in the actual Agreement, will be directly considered in the development of relevant annexes to the Agreement. This process, led by the Dept of Trade and Industry (DTI), has brought together in consultations such key role-players as the BTT, National Development Agency (NDA), South African Revenue Service (SARS), and National Treasury.

He concluded by saying that South Africa cannot ratify the Agreement until the full impact which the new bureaucracy would have, is completely understood.

Discussion
Ms C. September (ANC) asked what the implications of the Agreement would be for the South African parliamentary process. The BLNS countries had reported experiencing many difficulties with regard to trade. She asked how South Africa's trade agreements with the European Union (EU) would affect those countries. She further wanted to know if any agreements had been made to facilitate the capacity of those countries.

The Chairperson asked to be clearly informed if the Agreement would come with annexes. He wanted to know if there would be negotiations for new tariffs, should new members join the body, and accede to the existing tariffs. Lastly, he asked if it was policy to encourage more states to join as members of SACU.

Mz J Moloi (ANC) asked how long processing of tariff applications would take.

A member (ANC) asked when the International Trade Administration Commission (ITAC) Bill would come into effect.

Mr Carim replied that the Agreement sets out a framework on a wide range of issues. A simple approach by the SA Government would have been to ratify the Agreement, and possibly suggest annexes afterwards. However, the concern was raised at public hearings, that the establishment of the new institutions would delay the process around tariff applications. As a result of the Agreement, tariff applications would have to go through two more steps (the SACU Tariff Board, and the Council of Ministers). The nature of these applications, is such that they need to be dealt with quite speedily. The proposal is to ratify the Agreement, with two annexes:
1. Speed up the internal processes
2. Make sure that very clear time frames are set for the processing of the application

On facilitating the capacity of BLNS countries, Mr Carim said it must be ensured that potential problems that could occur are pre-empted, and dealt with in the Agreement, so that BLNS countries are not negatively affected by tariff applications.

On how SA's agreement with the EU relates to the BLNS countries, Mr Carim reported that there had been a proposal to open up this agreement, which would mean that certain tariff concessions would have to be renegotiated.

A range of annexes was envisaged in the Agreement. It was important to develop the annexes, in order to minimise delays.

On new membership, Mr Carim referred the Committee to the Agreement, which stipulates that it is possible to take in new members, but no clear policy has yet been developed around the issue. A number of new developments are emerging that have a bearing on new membership. There is a wider SADEC intention to move towards a policy custom by 2010.

Mz Moitse said that although ITAC was scheduled for June 2003, indications seem to show that it would only come into effect sometime later. However, she said that it would not impact on the SACU Agreement.

The Chairperson stated that various Ministers had expressed severe reservations on the external tariff proposal. He added that he had been under the impression that there was a priority to ensure that the BLNS have greater access to the European markets, rather than less. Should they be brought to the level of access to this market which was experienced by SA, then they would lose out tremendously. It would seem the solution would be for SA to obtain the same level of access as afforded to the BLNS countries, which he was sure, was quite unlikely.

Ms September expressed her worry that South Africa was seen to be delaying the ratification of the Agreement, because they were more concerned about solving their own problems, than assisting neighbouring countries.

Mz C. Nkunu (ANC) asked how Member States were elected to sit on the Tribunal, and how long they would sit.

Mr Carim responded that, should SA open up negotiations with the Europeans to the BLNS countries, they would have to consider which products these countries would have better access to. It would be found that they would generally have much better preference in terms of trade than South Africa, and they would be dealing with a narrow range of products. He cautioned the Committee that opening up the EU Agreement could be to the detriment of the Botswana, Lesotho, Namibia, Swaziland (BLNS) countries, as it could mean they would be worse off than before. Currently BLNS countries are given more trade concessions than South Africa, which presently is to their benefit.

He conceded that it was a concern that South Africa was seen to be delaying the process. However, as a dominant economy, South Africa had to ensure that its own economy was not prejudiced. If the South African economy suffers, the rest of the African economies will suffer. He added that, in SA's interaction with the BLNS economies, these kinds of concerns were always there, simply because the South African economy is a dominant one.

Mr Mogapi noted that the Tribunal would not be a permanent structure, but an ad hoc one. Member States would be encouraged to deal with their disputes on a bilateral level. The Tribunal would be seen as the last resort. A database would be kept, from which Member States could choose who would sit on the Tribunal to deliberate on their dispute.

The Chairperson mentioned that at the presentation of the ITAC Bill, there had been a mixture of sentiment around trade revenues, and the time that two extra bureaucratic layers would add to the tariff application process. However, it appeared to all that only SA was interested in discussing these questions. With reference to the concern that SA's role could be seen to be self-motivated, he noted that the DTI completely rejects the notion that SA dominates in matters relating to SACU, because the body is run on a completely democratic basis. Dominance is not part of the reason that this matter is being delayed.

Adoption of Committee Report on Hearings on Special Funds for Development & Poverty Alleviation
After accepting various technical changes, the report was unanimously adopted.

The meeting was adjourned.

Appendix 1:

SACU heads of state signed the New SACU Agreement in October 2002. Parliament last year passed the International Trade Administration Act that gives effect to section 14 of the New SACU Agreement on National Bodies.

It establishes a Commission for International Trade that will replace the current Board on Tariffs and Trade.

The New SACU Agreement replaces the current agreement of 1969 establishing the Southern African Customs Union. This agreement was concluded in recognition of the fact the current agreement no longer adequately caters for the needs of a customs union in the 21st century. It should therefore be aligned with current developments in international trade.

The New Agreement consists of nine parts:

Part 1 Definitions and objectives:

The objectives of this agreement include the facilitation and promotion of cross-border movements of goods and services under conditions of fair competition, the economic development of the region, the promotion of investment the equitable sharing of customs and excise revenue.

Part 2 Establishment and Legal Status

Part 2 establishes SACU as a legal entity with permanent headquarters. It also deals with membership issues.

Part 3 Institutions

The following institutions are established:

a.) Council of Ministers

The Council consists of at least one Minister from each Member State and is the supreme decision making authority on SACU matters. It will be responsible for overall policy direction, as well as the functioning of SACU institutions. It will also oversee the implementation of policies.

b) Customs Union Commission

This Commission consists of senior officials at the level of Permanent Secretaries, Directors-General, Principal Secretaries or other officials of similar rank. It is responsible and reports to the Council and takes care of the implementation of the Agreement. It will also be responsible for overseeing the management of the revenue pool. It supervises the work of the Secretariat.

c) Secretariat

The Secretariat becomes a permanent SACU institution. It will be responsible for the day-to-day administration of SACU. This includes providing administrative support to the other SACU institutions and to assist in trade negotiations. It will be headed by an Executive Secretary and can have its own staff complement. Finally, the Secretariat will be the depository of all SACU records. It will be located in Windhoek, Maseru or Mbabane.

d) SACU Tariff Board

The Tariff Board will consist of experts drawn from Member States. It will be an independent institution made up of full-time or part-time members or both. It basically takes over the decision-making functions of the current Board on Tariffs and Trade and is responsible for the application of tariff policy and submitting its recommendations to Council. The latter will make the final decision.

e) Technical Liaison Committees

Four technical liaison committees are established: Agriculture, Customs, Trade and Industry, and Transport. They will assist and advise the Commission in its work. The Council may establish additional technical liaison committees.

f) Tribunal

There will be an ad hoc Tribunal that reports directly to the Council. It consists of three members. It can, at the request of Council, consider any issue and furnish the Council with its recommendations. However, the most important function of the Tribunal is that is acts as a dispute settlement body.

 

g) National Bodies

Each Member State has to establish a National Body or nominate an existing institution. This Body or institution will be entrusted with receiving request for tariff changes or other related SACU issues. They will carry out the necessary investigations and recommend any tariff changes necessary to the Tariff Board. They are also tasked with continuously evaluating the impact of tariffs within respective Member States and propose any changes deemed necessary to the Commission.

For all these institutions, work procedures and rules of conduct still need to be determined and approved by the Council. Once this has happened, these procedures and rules will be annexed to the Agreement.

Part 4 Meetings

This part deals with meetings and quorums for meetings.

Part 5 Trade Liberalisation

This section deals with an important aspect of the Agreement. It ensures the free movement of domestic products within the Common Customs Area, as well as goods imported from outside the Common Customs Area. It also covers the treatment of non-tariff measures, including technical barriers to trade and sanitary and phytosanitary issues. Basically it obliges Member States to adhere to international norms and standards, including the relevant WTO agreements when applying these measures. Article 26 recognises the right of each Member State to prohibit or restrict imports or exports of goods for economic, social, cultural or other reasons as agreed upon by the Council. Part five also ensures the freedom of transit of goods and enshrines the principle of non-discrimination as far as rail and road transport is concerned.

Three issues included in part five need special mention:

    1. Arrangements for regulating the marketing of agricultural products
    2. Trade relations with third parties:
    3. Protection of infant industries:
    4. : As in the old agreement, Member States are allowed to implement regulations for the marketing of an agricultural commodity. This has to be done on a non-discriminatory basis to similar commodities produced in other areas of the Common Customs Area. Member States agree to consult from time to time on matters affecting the production of agricultural products within its borders and the improvement and extension of marketing arrangements for such commodities. Any marketing regulation may not restrict the free trade of agricultural products except when it is aimed at the emergent agricultural sector and agro-related industries or for any other purpose as agreed upon between Member States. Each measure has to be subject to a sunset clause outlining its period and conditions. Finally, agricultural trade formalities and documents should be simplified and harmonised, while all Member States should work towards the harmonisation of standards for agricultural products. Member States may maintain existing trade and other related agreements. However, for any new agreement, a common negotiating mechanism has to be developed, while no Member States may enter into new agreements with third parties or amend existing agreements without the consent of other Member States. This implies that in future, all trade agreements have to be between SACU as a unit and a third party. The BLNS may implement infant industry protection to help with economic development in their countries. This applies to industries that have been established in the BLNS for not more than eight years. Protection afforded under this measure will be for eight years, unless Council determines otherwise. The latter may also impose additional terms and conditions. In the past, the BLNS often used this instrument. It required consultations, but not consent from other Member States. Under the new Agreement, Council has an input into the matter, significantly decreasing the ability of the BLNS to act unilaterally.

Part 6 Revenue Sharing

Part six outlines the revenue sharing formula. It also specifies that the financing of the Secretariat, the SACU Tariff Board and the Tribunal will be deducted from the customs and excise duties collected before distribution to Member States. The formula consists of three components:

    1. The Customs Component consists of customs duties and ad valorem excise duties collected on goods imported into the SACU area, as well as any other duty collected on imported goods. Each Member State's share will be calculated from the cost-freight-insurance (CIF) value of imports recorded by each Member State expressed as a percentage of the total CIF-value of imports into SACU.
    2. The Excise Component consists of excise duties collected from goods produced within the SACU area. Generally, excise duties make up the largest part of all revenue collected. Each Member State's share will be calculated from the value of its GDP in a specific calendar year expressed as a percentage of total SACU GDP for that year.
    3. The Development Component is a new feature. It will be funded from a fixed percentage (initially 15%) of the excise component. Each Member State will receive a share of this component, based on GDP per capita. The distribution will be weighted in favour of the less developed Member States of SACU.

Part 7 Common Policies

This part aims at establishing a framework for harmonisation of policies in the SACU region. This includes the development of common industrial policies, co-operation on agricultural and competition policies, and the development of measures that deal with unfair trade practices within SACU.

Part 8 Final Provisions

This section deals with the establishment of Annexe, which will form an integral part of the Agreement, even if annexed after the signing and implementation of the Agreement. It further covers amendments, signature, ratification (in accordance of each Member State's constitutional procedures), entry into force, withdrawal, accession and depository (Executive Secretary). It also provides for a transitional period where existing institutions, obligations or arrangements can continue, provided that they are not in conflict with the Agreement. This has implications for agriculture, where the BLNS have implemented several marketing regulations that still apply. These have to be tested against the conditions that they should not be in conflict with the provisions of the new Agreement. Finally, Article 51 provides for the termination of the 1969 Agreement.

  1. THE WAY FORWARD
  2. The new SACU Agreement will shortly be submitted to Parliament for ratification and will enter into force following ratification by all five signatories. As the implementation is dependent on a number of annexes aimed at its operationalisation, the dti has embarked on a process of developing some of the key annexes that relate to the establishment and functioning of the tariff Board and the procedures to be applied in case of tariff adjustments and trade remedies.

    Appendix 2:
    INTERNATIONAL TRADE ANDECONOMIC DEVELOPMENT DIVISION SOUTH AFRICA

    1. SUBJECT
    Briefing to the Portfolio Committee on Trade and Industry on the ratification of the new SACU Agreement

    2. PURPOSE
    To brief the Portfolio Committee on progress made towards the ratification of the new SACU Agreement

    3. BACKGROUND
    During the public hearings on the International Trade Administration Commission (ITAC) Bill, organised business and labour raised several concerns about the new SACU institutions, particularly as these would impact on the functioning of the new ITAC. The issues mainly relate to the speed and efficiency of decision-making and decision taking regarding urgent tariff applications and provisional payments. More broadly, issues were raised regarding the varying levels of industrial development between South Africa and the rest of SACU and the turnaround time to deal with these.

    These issues are not addressed in the Agreement, but will be considered directly in the development of the relevant annex to the Agreement (Tariff Board Annex).

    The annexes are meant to facilitate the implementation of the Agreement. The development of Annexes raises additional issues. BLNS States have far less demanding Constitutional and Parliamentary ratification procedure than those found in South Africa. Consequently, the BLNS States have completed their ratification process. South Africa has two possibilities. First, to seek early ratification and development of Annexes later, with commitment to Parliament to produce annexes by an agreed date. Second, a preferred route to develop key annexes before seeking ratification. Although this will delay the overall SACU process for several months, it will retain the integrity of our Parliamentary process.

    A number of activities are planned for the implementation of the Agreement but none of will materialise or have legal status until such time as all Member States have ratified the Agreement. A close example is the appointment of the SACU Executive Secretary. At the last SACU Ministerial meeting held on 31 January
    2003 in Windhoek, Member States were urged to ensure ratification by the end of February 2003.

    4. PROPOSAL ON THE RATIFICATION PROCESS
    This proposal entails developing an annex on the rules and procedures for the SACU Tariff Board before ratification of the Agreement can be sought.

    In terms of this proposal the following activities are being planned, beginning in
    early February until May 2003. The planning here is based on the preliminary
    Parliamentary programme for 2003.

DTI INTERNATIONAL TRADE AND ECONOMIC DEVELOPMENT DIVISION SOUTH AFRICA

Briefing SOUTHERN AFRICAN CUSTOMS UNION AGREEMENT, April 2003

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