TRALAC - Trade Law Centre

SACU: Critical meeting for regional customs union

Monday, 12 July 2010

Source: Times Live (South Africa)

Heads of state of the Southern Africa Customs Union (Sacu) will gather for a historic meeting in Pretoria next week to discuss the future of the union amid an increasing reluctance from SA to pay billions of rands annually to help fund member states' fiscal budgets.

Sacu, which is celebrating its centenary this year, consists of SA, and Botswana, Lesotho, Namibia and Swaziland (BLNS).

This will be the second Sacu heads of state meeting since its inception, and comes after an invitation from President Jacob Zuma in April at the centenary celebrations in Windhoek.

"(At the meeting in April), we spoke about the need to take Sacu forward and use it as an instrument of development and integration," said trade and industry minister Rob Davies.

Concrete proposals will be tabled in Pretoria next week.

While the need for closer co-operation has been discussed for some time at official and ministerial levels, little headway has been made so far.

Sacu's future has been under tremendous pressure since the BLNS signed interim economic partnership agreements with the European Union (EU) last year, against SA's will.

While all member states are now "on the same page" regarding trade negotiations, members are still "far apart" on issues such as the review of the Sacu revenue-sharing formula and the possible expansion of Sacu to include other member countries of the Southern African Development Community (SADC), says a Namibian trade policy expert, who did not want to be named.

All Sacu member countries are under immense financial pressure. South African transfers to the Sacu pool annually exceed R20-billion, or 1% of GDP, of which as much as 90% is estimated to be no-strings-attached aid revenue, a transfer which Treasury has resented for some time.

The Sacu revenue is used to finance as much as 70% of the smaller member states' budgets, and the collapse seen this year - Sacu transfers dropped by 47%, with a further decrease of 45% budgeted for next year - has had a devastating effect.

Swaziland is expecting a budget deficit of 13% of GDP this year, while Lesotho, whose Sacu revenues dropped by 60%, is expecting a deficit of 12%. Even Botswana, the richest member state on a per-capita basis, is expecting a 12.2% deficit. A maximum deficit of 3% of GDP is seen as manageable.

"It's as scary as Greece and Ireland and it's right on our doorstep," said Matthew Stern, an economist at Development Network Africa.

Any changes that will further decrease the BLNS's slice of the pie are therefore expected to be met with much resistance.

SA, however, is adamant that the formula must change, and that the money be used for development purposes.

Increasing membership of the union to include all SADC countries may also provide SA with the opportunity to extricate itself from the onerous revenue payment commitments that it has to the BLNS.

"Ideally, there should be changes. Recent developments have shown that the current formula doesn't work and isn't sustainable," said Stern.

''But this being Sacu, change is hard and slow. I wouldn't be at all surprised if the status quo remains for a few more years," he added.

Catherine Grant, trade policy director at Business Unity SA (Busa), says change is needed.

"They really need to discuss the future of Sacu. It definitely needs to change - it is not functioning in a way that is conducive to business.

"There are constraints that are proving to be very significant," she said.

Areas of concern include the new customs bill, which would no longer treat goods trading into the BLNS on an equal basis.

The aim of a customs union is to facilitate the free flow of goods between member states.

The length of time to conclude trade negotiations and getting agreements ratified, or to finalise antidumping investigations in SA - where companies in member states also have to be consulted - are other problem areas.

Ongoing pressures from the US to exclude SA from AGOA (the African Growth and Opportunity Act) under which the majority of SA exports enter the US market both duty and quota free, was also "looming large", Grant said.

If successful, next week's meeting will lead to a narrowing of the gaps that exist between member states, and lead to closer integration and co-operation between the member states.

 

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