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Fourth Trade Policy Review of SACU: Minutes of the meeting


Fourth Trade Policy Review of SACU: Minutes of the meeting

Fourth Trade Policy Review of SACU: Minutes of the meeting
Photo credit: Namib Times

The fourth joint Trade Policy Review of the Southern African Customs Union (SACU) countries, i.e. Botswana, the Kingdom of Lesotho, Namibia, South Africa, and the Kingdom of Swaziland, was held on 4 and 6 November 2015.

The Review contributed to deepening the understanding of the regional, as well as national elements of the trade regimes of Botswana, Lesotho, Namibia, South Africa, and Swaziland. The five countries were praised for their commitment to the multilateral trading system, and their active participation in the WTO. They were also encouraged to ensure that their regional trade agreements (RTAs) are consistent with WTO provisions, and to comply with their notification obligations, particularly in the areas of SPS, TBT, and import licensing for the benefit of transparency and predictability.

The substantial number of advance written questions and of interventions indicates the importance Members attach to SACU states’ trade policies and practices. Members urged the five countries to pursue their trade liberalization reforms, to improve the implementation of their multilateral commitments on goods and services and their business environment with a view to enhancing transparency and predictability, and attracting investment.

Introductory remarks by the Chairperson

H.E. Mr Atanas Atanassov Paparizov (Bulgaria)

Over the period under review, economic performance in the SACU countries had fluctuated with a downward trend in their consolidated (total) GDP growth rate. Their highest consolidated GDP growth of 3.4% had been recorded in 2011 and the lowest (-1.7%) in 2009; it had been around 2.5% per year since 2012. This performance had largely resulted from the global economic crisis and its impact on the mining and manufacturing sectors. Economic growth had been uneven within SACU but the overall (consolidated) performance largely reflected South Africa’s, as the latter accounted for about 91% of the region’s total GDP.

SACU countries sourced some 13% of their imports in the customs union, and supplied the union in the same range. As the main economy, South Africa also dominated regional trade, with over 95% of commercial flows within the customs union involving South Africa as a destination or source. Extra-SACU imports originated mainly from the EU, China, and the United States, which were also among SACU’s main export markets. Overall, with the exception of South Africa, diversification remained an issue for SACU members as it was at the time of the previous Review in 2009.

SACU’s common trade regime had remained broadly unchanged since the previous Review. Within SACU, customs-related measures, including the applied MFN tariff, excise duties, duty and tax concessions, customs valuation, rules of origin, and contingency trade remedies, had been harmonized. For the time being, in the absence of a regional body, the International Trade Administration Commission (ITAC) of South Africa was responsible for managing the SACU common external tariff (CET); it was also mandated to recommend all rebates, refunds, and drawbacks in SACU.

During the period under review, SACU members had made efforts to facilitate trade by further streamlining customs procedures and documentation. Nevertheless, their common external tariff (CET) remained complex, comprising ad valorem, specific, mixed, formula (variable) duties, and their combination, while their individual tariff binding commitments were at ad valorem rates. The simple average applied rate of the CET was 8.3% in 2015, slightly up from 8.1% in 2009. Tariff rates continued to display high dispersion.

In addition to these challenges mostly related to the common trade regime of the SACU countries, other elements of the harmonized regime such as the antidumping regime, as well as country-specific regimes were of interest to Members. On investment, Members wanted to know more about the reforms implemented by each SACU State since the previous Review and their likely impact. Regarding non-tariff barriers, issues of interest to Members included import prohibitions, licensing and other import restrictions applied by most SACU States, for instance the use of import restrictions to promote local production in Botswana, Lesotho and Swaziland, and the administration of tariff quotas by South Africa.

On SPS, Members were interested in the reforms implemented by South Africa and its compliance with the relevant WTO provisions. SACU States used incentives to promote diversification and investment, and the impact of such a strategy was of interest to Members. None of the SACU States was a party to the WTO Government Procurement Agreement and information on their plans to join the Agreement was appreciated, as this would further open their procurement regime to foreign participation and enhance transparency. Members were also interested in the enforcement of intellectual property rights in the SACU region, specifically on the role that Customs played in this regard, and the current status of draft laws and regulations.

On sectoral policies, Members’ knowledge would be improved by further information on the extent to which environmental aspects were taken into account in the fisheries, energy, mining, tourism and transportation sectors; state participation in the mining sector in Botswana and Namibia; the agricultural reform undertaken by Lesotho; and on the industrial policies applied by South Africa and Swaziland.

The Chairperson noted that as at the time of the last Review in 2009, the SACU economies continued to grapple with issues such as poverty eradication and income inequality; thus the need to accelerate structural reforms to improve the productivity and competitiveness and hence ensure inclusive growth. In this context, Members were interested to learn which policies were the SACU States planning in order to implement and attain the UN Development Goals and how the WTO Members could assist them in this endeavour.

Statement by the Discussant

Mr. Alberto Pedro D’Alotto (Argentina)

I would like to highlight the comprehensive reports prepared by the Governments of Botswana, Lesotho, Namibia, South Africa and Swaziland and by the WTO Secretariat for this meeting. Their effort for the work of this TPR must be emphasized, as this TPR encloses multiple Members, and therefore there are multiple sources of information to be taken into account. Both the Secretariat’s report and the SACU’s report, thanks to their comprehensiveness, will certainly assist us during the following days in our discussions.

I would like to draw your attention over certain aspects of these reports, which I considered as being the most important ones to be addressed briefly.

As you recall, the last review was made in 2009 and that was a year with a particular connotation as a global financial crisis happened during that time. Thus, it is understandable that in the global review that we are discussing today, the effects of this crisis are reflected with a downward trend in their consolidated (total) GDP growth rates. The detrimental impact of the economic crisis on almost all economic activities brought down the consolidated GDP growth as low as -1.7% in 2009. If seen disaggregated, two countries were more resilient to the crisis, as Lesotho and Namibia had GDP growths of 3.4-7.8% and 0.6-6% respectively for the period under review.

When observed collectively, the SACU economies grew the most in 2010 (3.4%), and in 2011 (3.7%). These positive results were triggered mainly by the pickup of the mining activities throughout the region and also thanks to the revenues from the manufacture sector.

The discrepancy between the consolidated GDP and the disaggregated one relies mainly on the inequality amongst the SACU economies. With a total GDP of US$350 billion, South Africa’s economy ranked first in the region as it represented over 91% of the region’s total GDP (which adds up to US$380). In contrast, Lesotho accounted for only 0.6% of the total GDP with its US$2.1 billion in 2013. This macroeconomic inequality is reflected not only on the different levels of development or economic structures between the SACU members, but also on an Intra-country level. For example, one of the biggest challenges that still persist for SACU members is that they rank high on the income inequality worldwide. This situation has worrying social effects throughout the region, as for example the population living below the poverty line has ranged between 19.3% and -63% (Botswana in 2009 and Swaziland in 2010, respectively). We sincerely trust that SACU members will be up to the challenge of overcoming this situation with the policies reforms and programmes that will be discussed during these couple of days.

As it was noted in the previous report, SACU displays a trade deficit that still has to be corrected by all of its members, except for Botswana, which had a trade surplus during this review period. For example, in Namibia this is a challenging issue, as its trade deficit has increased in a yearly basis since 2010, rising from 3.8 in 2010 to 26.5 in 2014. If a trade deficit widens in one year by 52.3% (from N$17.2 billion in 2013 to N$26.2 billion in 2014), the political willingness to address this issue must be accompanied by innovation. That is why we see with optimism that Namibia has implemented the Export Processing Zone Programme (EPZ), which we hope will succeed in attracting investments for export-oriented manufacturing and value added activities. But when we analyse the region as a whole, I cannot help but notice that its main source of the aggregate trade deficit is the decline of exports and a high demand for motor vehicles and machinery by South Africa. Even though this is a result of the development that South Africa is experiencing, it would be interesting to hear from all these countries what actions or plans are being taken to overcome this trade deficit experienced in the region.

South Africa’s views about these subjects, in particular, will be most relevant during this review, as it is involved in over 95% of the commercial flows within the customs union. As reported in the previous TPR, there are still opportunities for the region to enhance their intra-SACU trade as, in aggregate, approximately 13% of SACU’s imports where sourced by the region. For example, approximately 3% of South Africa’s import demands where covered by SACU countries, while Lesotho’s and Swaziland’s imports where covered in approximately 90% by their SACU partners. This is an opportunity to be addressed, without overlooking the strong market that the region already has with EU countries, which are the leading investors in the region, and with the United States, China, and other Asian countries.

We are confident that SACU will also be able to increase their extra-SACU trade with these countries, as its members are implementing different types of programmes that will improve the business environment in general. For example, Lesotho’s Private sector competitiveness and Economic Diversification project or its Customs Modernization Programme, might ensure trade benefits in general. Also, Swaziland’s Investor Road Map and its National Development Strategy could effectively induce economic diversification and growth. Overall, these programmes might help improve SACU members’ ranking in the World Bank’s doing business report, to rise them back – or even better – to where they were in 2008 (compared to this year’s negative results).

Although no new trade agreements were signed or implemented during the last five years, since the last review report, SACU members are currently negotiating a Preferential Treatment Agreement with India, and they are participating in the negotiations on the Tripartite Free Trade Agreement between COMESA, the EAC and SADC. Negotiations with the EU on a SADC-EU Economic Partnership Agreement (EPA) were completed last year during July, and some SACU countries maintain trade agreements and have launched bilateral trade negotiations (despite a consensus to negotiate this type of agreements as a group).

As reported by the Secretariat in 2009, applied MFN customs tariff, excise duties, duty and tax concessions (rebates, refunds and drawbacks), customs valuation, rules of origin, and contingency trade remedies remain harmonized within SACU. But it is noteworthy to mention that in 2014, South Africa adopted a new customs valuation legislation that still derives from the WTO Agreement on Customs Valuation, where the customs value of imported goods is the transaction value based on the f.o.b. prices of imports. SACU’s customs valuation regime is still largely based on South Africa’s legislation, and in 2011, a “Regional Customs Policy Document” was adopted by the SACU Council of Ministers as a common strategic objectives plan to pursue the implementation of specific customs projects.

Members of the WTO have submitted interesting questions to the different SACU countries, on a variety of issues, and being so many, I would like to call your attention upon those that deal with SACU’s Common regime. Also, concerns about SACU’s efforts to bring its institutions into operation and to promote their full independence have been brought forward. Members’ questions about the SACU’s services liberalization seem most relevant as their economies remain dominated by their relatively large services sector (about 60% of their consolidated GDP).

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