On 26 and 27 April 2018, tralac hosted a High-Level Dialogue on SACU, with a focus on the SACU Work Programme and Future Developments. Participants came from the private and public sector across the region.

Discussions centred around three key areas: SACU revenue sharing, SACU’s external relations and the future of SACU. Updates were provided by the SACU Secretariat and member states.

The future of SACU

SACU is the world’s oldest customs union, and one of the most integrated regions in Africa. Notwithstanding, or perhaps despite of the SACU Agreement, the SACU region is a well-integrated commercial space and members are inter-dependent. In addition to the being a customs and excise union, four of the five member states (excluding Botswana) belong to the Common Monetary Area, bringing monetary policy into the integration space.

The relationship between the five member states – South Africa, Botswana, Lesotho, Namibia and Swaziland is based on the SACU Agreement, the most recent iteration being completed in 2002.

The Agreement provides for the distribution of the pool of customs and excise revenue, and for the development of common policies in key areas, including competition, industrial development, agriculture and unfair trading. 

The Agreement establishes the Commission of Senior Officials and the supreme decision-making body, the Council of Ministers, where decisions are taken by consensus. A Tariff Board and Tribunal are also provided for, but they have not been established. The Agreement has been amended to institutionalise a Summit of Heads of State and Government.

There are many flaws in the way SACU is designed (some resulting from the inclusion of parts of the 1969 SACU Agreement), and in the way it operates. As well as the failure to implement many of the SACU Agreement provisions – the institutions and the common policies – there are elements of the Agreement itself that cause problems. For example, the consensus decision-making model of SACU is problematic, particularly given differing levels of development and size among the members.

SACU in many ways epitomises the challenges in integration across the continent, in particular, the challenge of integrating unequal partners and the challenge of regional integration in the 21st century political and economic environment.

 It is in this context that he SACU Council of Ministers decided in 2017 that SACU’s work going forward would focus on three areas:

• Tariff management and institutional architecture
• Industrial development
• Revenue sharing

The import tariff features prominently in all three work areas – in SACU there has been a disproportionate focus on the use of the import tariff as the key tool for industrial development, and the smaller member states remain significantly dependent on this source of revenue.

We identified four potential options for SACU’s future:

1. Implementation: the 2002 SACU Agreement is implemented in full and therefore disquiet around the financial aspects of the agreement, and the common policy-making should be resolved through the institutions that would be established.

2. Status quo: Current practice continues – a reality aside from what the SACU Agreement provides

3. Incremental change: specific provisions in the SACU arrangement are amended, but there is no wholesale review of the agreement.

4. Renegotiation of the SACU Agreement: this could start with a renegotiation of the revenue sharing arrangement

There is an increasing acknowledgement among member states that many provisions of the 2002 agreement are unlikely to come into effect and that incremental change is the most likely course of events, however it will be important to keep reconsidering the value of SACU and its underlying instruments as this process is undertaken.

Continuing with the status quo is not supported by most members, but there is a risk that this will be the result, particularly given some of the flaws in the arrangements – for example, the absence of dispute resolution, the failure of member states to institute competition authorities and the absence of supra-national governance.

Members, particularly South Africa, are now speaking of SACU as needing to transform into a ‘developmental region’ – but it is unclear what this means in practice.

Sovereignty and policy space can dominate discussions around the future of SACU, and conflict with the idea of an integrated trading region. Member states need to focus on what the task is – what they want from SACU. In the 21st century, this should not be merely a customs union, but rather should acknowledge the integration of goods and services, the integration of the financial, monetary and fiscal areas, that is a result of the integration of goods trade and industrial development.

In a future SACU, ideally, there would more emphasis on development, and less on the import tariff. More emphasis on competition policy and less on trade remedies. More focus on building value-chains in the region, rather than rebates.