Building capacity to help Africa trade better

What is a Customs Union like SACU about?


What is a Customs Union like SACU about?

What is a Customs Union like SACU about?

From a legal and technical point of view the Southern African Customs Union (SACU) is a Customs Union (CU) and an international organization with legal personality. Since a CU is an exception to the Most Favoured Nation (MFN) rule of the General Agreement on Tariffs and Trade (GATT), SACU’s founding agreement, internal rules, governance structure and practice must comply with the applicable multilateral legal requirements. SACU is a is a WTO notified CU. Its Member States (MS)[1] must respect Article XXIV (8) GATT, which provides as follows:

For the purposes of this Agreement:

  1. A customs union shall be understood to mean the substitution of a single customs territory for two or more customs territories, so that

    1. duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated with respect to substantially all the trade between the constituent territories of the union or at least with respect to substantially all the trade in products originating in such territories, and,

    2. subject to the provisions of paragraph 9, substantially the same duties and other regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union.

SACU has a single customs territory[2] and a CET.[3] The SACU MS cannot individually conclude trade in goods agreements with third parties; they must make joint tariff offers in order to protect the integrity of the SACU CET.[4].

SACU is also an Excise Union. “The Ministers responsible for Finance in all Member States shall meet and agree on the rates of specific excise and ad valorem excise duties and specific customs and ad valorem customs duties to be applied to goods grown, produced or manufactured in or imported into the Common customs Area.”[5]

In its present configuration SACU exists since 1910.[6] It has always been a trade in goods arrangement, but with a unique revenue sharing dimension. (Article XXIV GATT does not prescribe how customs revenue is shared in a CU.) This feature of SACU goes back to the original reasons for establishing SACU – at a time when Botswana, eSwatini and Lesotho were British colonies, and Namibia (then known as South West Africa (SWA), a former German colony), was administered as an integral part of South Africa.[7] Financial support for the smaller MS figured from the beginning. The sharing of customs revenue (mainly generated by South African imports) has always been part and parcel of the SACU raison d’être. It seems fair to say that this aspect has contributed substantially to regional stability.

Four of the five MS[8] belong to the Common Monetary Area (CMA), which is a separate arrangement, but which contributes to important aspects of SACU’s integration. Botswana’s currency is linked to a basket of other currencies, of which the South African Rand forms part.

The SACU Agreement does not cover trade in services or other disciplines included in modern regional integration arrangements. However, there is a high degree of de facto integration with regard to trade in services – in sectors such as retail, banking, insurance, logistics and professional services. This stems from the long period of inter-state cooperation, investments by mostly South African firms, and other factors such as the sharing of the same legal system (the Common Law) and the recognition of qualifications and standards.

SACU is probably the most integrated regional arrangement in Africa. It accounts for more than 50% of all intra-African trade in goods[9]. For trade in services the figure can be expected to be high too. Proximity and infrastructural links are additional explanations for the high degree of integration, which also happens in areas such as transport, the utilization of shared water resources[10] and energy.[11]

SACU is an International Organization with legal personality.[12] The “constitution” of SACU is a binding international agreement of which the five MS are the Parties. It was adopted in 2002, entered into force in July 2004, and replaced the 1969 SACU Agreement. Note however that Article 4 of the SACU Agreement states that the Organizations legal capacity is limited to the “power to enter into contracts, acquire, own or dispose of movable or immovable property, and to sue and be sued. It cannot, qua Organization, enter into international agreements with external parties. SACU has concluded a headquarters agreement with Namibia, the host Member State.

Trade agreements with external parties must be dealt with in terms of Article 31 of the Agreement. It states that the Member States shall establish a common negotiating mechanism... for the purpose of undertaking negotiations with third parties. This has not yet happened, but the MS make joint tariff offers in order to protect the integrity of the SACU CET, which is managed by the South African International Trade administration commission (ITAC).[13] SACU MS sign and ratify these agreements in their own right.

SACU has concluded several trade agreements with external parties. The SADC-EU EPA is the most comprehensive Economic Partnership Agreement (EPA) which the European Union (EU) has concluded with African countries. It is essentially a SACU (and Mozambique) FTA with the EU. It entered provisionally into force in October 2016.

The SACU-EFTA Agreement[14] (an FTA) covers trade in goods and lays the foundation for a further engagement of the Parties with regard to intellectual property, investment, trade in services and public procurement. A Joint Committee is established for the supervision and administration of the Agreement, and provisions are included providing for consultations and dispute settlement procedures.[15] EFTA is proposing expansion of the terms of the agreement, including binding commitments about sustainable development and trade facilitation. In December 2004, Mercosur and SACU signed a preferential trade agreement.[16] It entered into force on 1 April 2016.[17] There are “ongoing” PTA negotiations between SACU and India. the SACU website also lists a Cooperative Agreement between the United States of America and SACU, to foster Trade, Investment and Development.[18]

The SACU MS are members of the Southern African Development Community (SADC). They submitted joint tariff offers when they became members of the SADC Protocol on Trade, which was launched in 2008. The SACU MS currently participate in the negotiations to conclude the Tripartite Free Trade Area (TFTA) and the African Continental Free Trade Area (AfCFTA) Agreements.

[1] Botswana, eSwatini, Lesotho, Namibia and South Africa.

[2] Art 18 SACU Agreement.

[3] Art 20 SACU Agreement.

[4] Art 31 SACU Agreement.

[5] Art 21(1) SACU Agreement.

[6] For the historical background, see http://www.sacu.int/show.php?id=394

[7] Namibia had been a German colony till the end of the First World War. When the League of Nations was established in 1919, South West Africa became a Class C Mandate and South Africa was given the responsibility to administer this territory, as an “integral part” of the Union of South Africa.

[8] eSwatini, Lesotho, Namibia and South Africa.

[9] See https://www.imf.org/external/pubs/ft/fandd/2018/09/images/092018/arizala-chart4-lg.jpg

[10] The Orange-Senqu River basin extends over Lesotho, South Africa, Namibia and Botswana. The first phase of the Lesotho Highlands Water Project with South Africa was completed in 1986. A second phase is under construction.

[11] The Southern African Power Pool (SAPP) was created in August 1995, for the formation of an electricity power pool in the region. It coordinates the planning and operation of the electric power system among member utilities. http://www.sapp.co.zw/about-sapp

[12] Art 4 SACU Agreement.

[13] The SACU Council adopted resolutions to this effect in 2004 and over the next 2 years. See the other blogs in this Newsletter for a discussion of this aspect. The SACU Tariff Board is provided for in Art 11 but is not operational.

[14] The EFTA members are Iceland, Liechtenstein, Norway and Switzerland. This agreement entered into force on 1 May 2008.

[15] See https://www.tralac.org/resources/by-region/sacu.html#efta

[16] The Mercosur members are Argentina, Brazil, Paraguay and Uruguay.

[17] See https://www.tralac.org/resources/by-region/sacu.html#Mercosur

[18] It entered into force on 16 July 2008.

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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