An Overview of SACU

Posted on Thursday, June 5th, 2008 by tralac in Legal Resources

History and aim

SACU was established through the Customs Union Agreement of 1910 between the Union of South Africa and the three so-called High Commission Territories of Bechuanaland (now Botswana), Basutoland (now Lesotho) and Swaziland. The 1969 Customs Union Agreement between South Africa, Botswana, Lesotho and Swaziland replaced that Agreement. Namibia became a contracting party to the 1969 Agreement in 1990 upon its independence from South Africa. The customs union currently consists out of Botswana, Lesotho, Namibia and Swaziland (also referred to as the BLNS-countries) and South Africa.

The main reasons for the establishment of SACU were that of regional integration and the facilitation of trade between the members of the Agreement in order to improve economic development of the whole area, in particular the less advanced members.

What is SACU?

SACU is the most advanced form of regional integration on the African continent and the oldest customs union in the world. The members are united in a customs free zone. This means that all import duties between members are abolished. Although this is also the case in a free-trade area, a customs union is more integrated than a free trade area as a common external tariff (CET) is imposed against all non-members of the customs union, whereas in a free trade area the independent tariffs of the individual members are retained against non-members. A well-known example of a free-trade area is NAFTA, the North American Free Trade Agreement, while the best-known example of a customs union is that of the European Union.

In addition to the common external tariff, the SACU Agreement of 1969 also provides for a common excise tariff for all its members. All customs and excise duties collected in the common customs area have to be paid into South Africa`s National Revenue fund. The revenue is shared by all members according to a revenue-sharing formula described in the Agreement. SACU revenue constitutes a substantial share of the state revenue of the BLNS countries. South Africa has a dominant position in SACU that is provided for in the agreement itself, especially as far as the law in relation to customs, excise and sales duties are concerned. It determines tariffs and trade policies while member states lack sovereignty in the areas of monetary, fiscal and foreign exchange policy. This is because the Agreement interlinks the trade regimes of the five members as well as the value of their currencies, except in the case of Botswana.

The lack of a democratic structure providing for joint decision-making limited the success achieved by the agreement in the fulfilment of its goals and consequently member states started pushing for the renegotiation of the Agreement.

The future of SACU

Efforts were made by the other member states to renegotiate the 1969 Agreement in the past two decades, but it was only after 1994 when South Africa got its first democratic government that the renegotiations really got off the ground. Member states have since agreed that the 1969 Agreement should be renegotiated to democratise SACU and to create institutions that will enable the BLNS countries to participate fully in the decision-making processes in the customs union. A draft text for the new SACU Agreement has been agreed upon at the beginning of this year, containing three main areas of reform:

1. New Institutional Framework

The new institutional framework will establish SACU as an international organisation that will democratise the process of tariff setting and provide for joint decision-making.

The institutional framework will firstly consist of a Council of Ministers representing all member states. This will be the primary decision-making institution of SACU. The existing Customs Union Commission will be strengthened to advise the Council and to oversee the implementation of the Agreement. There will also be a Secretariat that will mainly play an administrative and supportive role. A representative Tariff Board will make recommendations on the common external tariff to the Council.

The existing Liaison Committees under the 1969 Agreement will continue to function. A Tribunal will be established for the settlement of disputes, especially in cases where the Council cannot settle the dispute itself. The Secretariat, the Tariff Board and the Tribunal will be financed from the common revenue pool of customs and excise duties, whereas the governments of the member states will finance all other institutions.

2. Revenue-sharing

The revenue-sharing formula has been a contentious issue, but the member states have managed to come to a satisfactory compromise. The new formula in the draft agreement has a built-in bias in favour of the BLNS countries to compensate them for any disadvantages flowing from the fact that they are involved in a customs union with the economically better developed South Africa. The formula also includes a development component. Each member state shall receive a share of this development component but the distribution shall be weighted in favour of the less developed states.

3. Policy matters

Provision has been made in the new Agreement for the development of common policies and strategies to enhance industrial development. It further provides for cooperation on agricultural policies to ensure the co-ordinated development of the agricultural sector. Competition policy and anti-dumping principles are also included.

The new Agreement should address the current needs of the SACU members more effectively, but it still has to be signed by all the members. As with any international agreement, it will then have to be ratified in the different member states according to their domestic procedures. Up to that point the member states will have to carry on as usual under the current Agreement of 1996. We can however expect the adoption of the new agreement in the near future.

Adoption of the new SACU agreement in South Africa

A draft bill, the ‘International Trade Administration Act’ (also known as the CITA bill), has been proposed by the Department of Trade and Industry for the implementation of the proposed new SACU Agreement in the Republic. This act will adopt the SACU Agreement making it domestic law in the Republic and provide a legal framework for carrying out the Republic`s obligations under such an agreement.

The act will further establish a new institution, the Commission for International Trade Administration (CITA), to carry out the investigation and adjudication of international trade applications and complaints in the Republic. CITA will replace the current Board on Tariffs and Trade operating in terms of the Board on Tariffs and Trade Act No 107 of 1986.

The act will also replace the Import and Export Control Act of 1963. CITA will be responsible for the issuing of permits and the restriction of imports and exports previously governed by that act. It will do the investigation and evaluation of alleged dumping, subsidized exports and disruptive competition in the Republic as well as the investigation and evaluation of applications for amendment of customs duties.



‘Cabinet adopts customs agreement’, Business Day

‘SACU deal satisfies trade and tariffs needs’, Business Day

‘SACU states reach deal’, Business Day

‘Trade between SACU and SADC in the 1990s’, Trade and Industrial Policy Secretariat

‘Trade between SACU and SADC in the 1990s’, Southern African Update (a publication by the Trade and Industrial Policy Secretariat)

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