Building capacity to help Africa trade better

SACU’s operational Challenge


SACU’s operational Challenge

SACU’s operational Challenge

What does the 2002 SACU Agreement promise in terms of how the Organization would function? What did the Member States subsequently do in order to ensure that the agreed formula would be implemented? Where does SACU now stand?

The present SACU Agreement was negotiated and adopted at a time of regional and global optimism. In 1994 Apartheid came to an end, South Africa had a peaceful transition to majority rule, and adopted a democratic constitution. This important development brought about a fundamental change in the political realities of Southern Africa. A few years earlier Namibia gained independence after many years of struggling for liberation. The Berlin wall fell in 1989. The Uruguay Round saw completion and on 1 January 1995 the World Trade Organization (WTO) was established. The global economy was in a good health.

Against this background, it was logical that the Member States of SACU wanted to re-negotiate the “constitution” of their Customs Union (CU), in existence since 1910. They decided to replace the 1969 SACU Agreement with a new treaty which would “adequately cater for the needs of a customs union in the 21st century.[1] They also agreed that there were structural flaws in the 1969 SACU agreement and that they would address the “lack of common policies and common institutions”.[2]

They did not lose sight of basic facts and therefore also recognized and confirmed that SACU would, as a customs union, have a Common External Tariff (CET) and a single customs territory; that tariffs are “instruments for the implementation of industrial development policy[3]; that the economies of the SACU Member States are at different levels of development; and that an arrangement on revenue sharing would continue in some form.

They then set out to write the terms of the new deal but could not fully complete the exercise. They started implementing the new Agreement (from July 2004) without all the new building blocks which they provided for. The SACU Tariff Board,[4] National Bodies,[5]ad hoc Tribunal,[6], Common Negotiating Mechanism,[7] and the Common Policies mentioned in Part Eight of the Agreement,[8] remained outstanding. The expectation was that they would soon be added. This did not happen.

The result is a fundamental operational dilemma; SACU functions without the mechanisms which must translate expectations into reality. The very important (interim) decision by the Council of Ministers in 2004,[9] to mandate the South African International Trade Administration Commission (ITAC) to manage the SACU CET, has brought about a de facto state of affairs which has turned out to be difficult to reverse. Botswana, eSwatini, Lesotho and Namibia (the BeLN countries) still do not have operational National Bodies.

The status quo leaves little policy space for the BeLN countries when it comes to their use of the import tariff and rebates for domestic industrial development. ITAC gives effect to its own mandate, which is linked to “all economic activity within, or having an effect within, the Republic [of South Africa].[10] The use of rebates is often mentioned as an example of a SACU practice which needs to be improved. The accommodation of the trade remedy needs of the smaller economies depends on institutional mechanisms which have remained absent from SACU’s praxis.

How to get out of this impasse? First do the politics. New legal instruments (or the refinement of existing ones) should only be decided once the political conundrum (the implementation of the terms of the deal in the 2002 SACU Agreement) has been resolved. Several scenarios are possible, but the Member States should first make a choice between adjusting and refining the status quo in order to accommodate the needs of the BeLN countries (in which case the ITAC mandate should be clarified), or they must implement the Tariff Body/National Bodies formula in the SACU Agreement, with adjustments were required. Such an exercise must confront a number of issues:

  • Article 11 of the SACU Agreement states that the “terms of reference, policy mandates, procedures and regulations of the Tariff Board shall be determined by the Council…” This has not been done. There are no explicit provisions for economic policies that will underpin the technical work to be undertaken by the Tariff Board in order to evaluate recommendations from National Bodies on changes to tariffs and related matters.

  • SACU decisions require consensus.

  • There should be a thorough investigation about how to comply with the relevant WTO rules and with requirements in trade agreements with third parties. Members of a CU need a mechanism for collective action and must speak in one voice to third parties.

  • Addressing unfair trade practices between SACU Member States will require a specific and separate response. Anti-dumping measures are conceptually not available in a single customs territory. However, unfair trade practices are a different matter. SACU has no arrangement for tackling them.

  • SACU does not function as a typical rules-based regional arrangement, at least not if “rules-based” refers to trade arrangements founded on enforceable common rules and obligations, joint structures, transparency and prompt notification. SACU also lacks procedures for oversight over compliance. Dispute settlement (despite the promise in the Preamble[11]) is absent.

If there is one lesson to be learned from the Brexit process, it is that disentanglement from an existing and well-functioning regional trade arrangement is a messy and uncertain business. SACU has been in existence for more than one hundred years and have brought many advantages in terms of regional integration, private sector benefits and trade liberalization. These benefits are at the core of regional stability.

[1] Preamble SACU Agreement.

[2] Ibid.

[3] Ibid.

[4] Art 11 SACU Agreement.

[5] Art 14 SACU Agreement.

[6] Art 13 SACU Agreement.

[7] Art 31 SACU Agreement.

[8] These policies must address competition, agriculture, industrialization and intra-SACU unfair trade practices.

[9] Subsequent decisions were adopted during the next 2 years.

[10] As provided in the South African International Trade Administration Act, No 71 of 2002.

[11] Which states that “a dispute settlement mechanism will provide a mutually acceptable solution to problems that may rise between Member States”.

About the Author(s)

Gerhard Erasmus

Gerhard Erasmus is a founder of tralac and Professor Emeritus (Law Faculty), University of Stellenbosch. He holds degrees from the University of the Free State, Bloemfontein (B.Iuris, LL.B), Leiden in the Netherlands (LLD) and a Master’s from the Fletcher School of Law and Diplomacy. He has consulted for governments, the private sector and regional organisations in southern Africa. He has also been involved in the drafting of the South African and Namibian constitutions. He grew up in Namibia.

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