SACU: Key Issues and Impact on Regional Integration Trudi Hartzenberg trudi@tralac.org Portfolio Committee – SACU Briefing 28 July 2015

What is SACU? Customs Union (current SACU Agreement 2002, in force since 2004) i) common external tariff (CET) (product imported into any SACU member state attracts the same import duty); informed by South Africa’s industrial policy ii) single customs territory (goods move freely among member states – no duties payable – border procedures deal with eg animal and plant health issues (eg foot & mouth disease) – very important from a trade facilitation and customs management perspective specifically Implications: Smaller Member States have given up trade policy space (they have the same policy on eg tariff issues); Members therefore negotiate trade agreements with third parties collectively They have to i) decide on the common trade/tariff policy ii) decide how to share customs revenue, and iii) to manage their collective affairs (eg to negotiate with third parties)

What is SACU? Excise union: excise taxes are paid into the common revenue pool to be shared according to the revenue sharing formula in the 2002 Agreement (article 34) Recent issues: introduction of levies on eg alcohol and tobacco products by some Member States (in some cases these are argued to be in the public interest)

Common Monetary Area (all except Botswana belong to the CMA) Monetary policy and exchange rate implications Bilateral agreements between South Africa and each of Lesotho, Swaziland and Namibia to govern the CMA Multi-currency arrangement (Rand is anchor currency and legal tender in the other Members, each of which has their own currency, which is not legal tender in SA) No formal arrangement for common interest rates, but the central banks of the smaller countries synchronise with changes in SA’s repurchase rate (bank rate); effectively they implement SA’s monetary policy Botswana not part of the CMA, but its currency (Pula) exchange rate determination follows a crawling peg (adjusted according to changes in a basket of currencies, with the Rand being weighted heavily in the basket)

Practical perspective on SACU High level of market integration (possibly the most integrated sub-region in Africa) Trade in goods (Botswana and Namibia are among South Africa’s top ten export destinations; key products – minerals and fuels, motor vehicles.. machinery and equipment) Trade in services (eg foreign direct investment – retail/wholesale/distribution services, financial, telecoms, construction, mining, professional, business, educational services) Linkages between trade in good and trade in services Trade facilitation matters Water matters: Lesotho Highlands Water Project Agreement links royalties payment to the SACU revenue sharing arrangement

Intra-governmental perspectives on SACU DTI: tariff policy space (used for industrial policy objectives) – concern about establishment of SACU institutions such as Tariff Board and Tribunal Treasury: Fiscal matters (media often reports on concerns about transfers/development aid – the payments are made in terms of an international agreement) DIRCO: Diplomacy/international relations/regional stability Department of Water Affairs: Water supply from Lesotho Highlands Water Project (links to SACU revenue sharing arrangement) Other departments? The Presidency? What is the South African position on SACU?

A future SACU? Issues to consider (1) Implementation of 5-point plan (2nd Summit 2011) Institutional architecture of SACU – institutions not yet established Meetings of established institutions (when last did the SACU Council and Commission meet; what has happened to the Technical Liaison Committees eg on agriculture?) What happens when National Bodies (equivalent of ITAC) are established by Botswana, Namibia, Lesotho and Swaziland? ITAC currently serves as SACU Tariff Board (in terms of a Council decision 2005/6) Renegotiating the revenue formula – very slow progress? What options – regional development fund – how can this work?

A future SACU – Issues to consider (2) If SACU is disbanded (no customs union) – what then? Some issues to consider: All SACU member states belong to SADC; they could trade under the SADC Free Trade Area; what happens to the SACU tariff regime in SADC? What about eg use of derogations, or surtaxes/levies? What about other SACU Agreements (EFTA, EPA, TFTA….bilateral agreements that SACU member states have)? WTO matters (denotification – what about bound rates of BLNS – what scope to increase tariffs?) BLNS need revenue - what can we expect them to do? They may diversify their import sources significantly. What will this mean for SA businesses? What are the true costs and benefits of SACU?