SACU Update - A New Vision?

SACU WorkshopParliamentary Portfolio Committees16 March 2011Trudi Hartzenbergtrudi@tralac.org

Overview

• SACU – 100 years on – A New Vision and Mission

• Intra-SACU Matters: An Agenda for Development?

• SACU’s extra-regional agenda: South-South Relationships, Intra-African Integration Agenda

• Conclusions

Background

• Definition of a customs union (single customs territory, common external tariff – CET); this has important implications:

- member states give up trade policy space (in particular they implement a common tariff policy – CET). This is different form a free trade area (member states liberalise trade amongst themselves, but maintain their own trade policy towards third parties)

- member states decide how to manage the revenue from the common external tariff

A New Vision and Mission for SACU

At the SACU centenary celebrations in April 2010, a new Vision and Mission were announced:

VISIONSACU: ‘An economic community with equitable and

sustainable development, dedicated to the welfare of its people for a common future’

MISSION (objectives) - To serve as an engine for regional integration and

development, industrial and economic diversification, the expansion of intra-regional trade and investment and global competitiveness

- To build economic policy coherence, harmonisation and convergence to meet the development needs of the region

- To promote sustainable economic growth and development for employment creation and poverty reduction

SACU Mission cont’d

• To serve as a building block for an ever closer community of the peoples of Southern Africa

• To develop common policies and strategies for areas such as trade facilitation; effective customs controls; and competition

• To develop effective, transparent and democratic institutions and processes

The 2010 Vision and Mission augment the objectives of SACU, Article 2 of the 2002 SACU Agreement

NOTE: Important development in 2010 – Meeting of Heads of State and Government (Summit); decision to institutionalise the Summit

Intra-SACU Matters

2002 SACU Agreement provides for:

- Institutions (Secretariat, Tariff Board, National Bodies, Tribunal, Commission, Technical Liaison Committees, Council of Ministers)

- Common policy development (industrial policy, agricultural policy, competition policy, unfair trade practices)

- Revenue sharing formula

Intra-SACU Matters (cont’d)

Status Review:

- Legal and Institutional Development (no Tariff Board or Tribunal yet; draft Annex on Tribunal, National Bodies – ITAC and other countries are working on estalishment)

- Annexes on competition policy and unfair trade practices have been developed but not adopted/implemented; industrial policy (concept paper developed by South Africa’s dti in 2010)

- Review of the Revenue Sharing Formula (recommendations to be considered by Council in April 2011), agreed to in Sept 2009 at a Special Council of Ministers Meeting in Swaziland

- Following two meetings of the Heads of State and Government in 2010, a decision to institutionalise a Summit (draft Annex has been prepared)

Review of the Revenue Sharing Formula

• Challenges related to the common revenue pool (keep in mind that the SACU revenue pool is a customs AND excise pool)

- Dependence on SACU Revenue by smaller countries (growth of public sectors, narrow tax bases …)

- Long-term decline in customs revenue (as a result of tariff liberalisation)

- Short-term volatility (pro-cyclical, difficult to predict trade flows)

- Import duty exemptions (rebates) – used primarily by South African companies

DRAFT Report is available – final report will be considered by Council in April 2011

Review of the RSF cont’d

• Recommendations on a revised RSF must meet the following demands by member states (according to the Study by CIE, Australia)

- Compensation (for adverse effects of SACU membership ie loss of control of tariff policy, polarisation, trade diversion, price rising effects of CET)

- Development (deeper regional integration, sustainable development, development convergence, strategy coherence/convergence)

Based on these two demands/objectives; there is a logic for compartmentalising the contributions to the revenue pool and then tying specific objectives to the revenue streams:

i) Import Duties and Compensation (links to discussion about industrial policy)

ii) Excise Duties and Development (discussion about a Development Fund is included here)

Extra-Regional Developments

• SADC (all SACU member states are also in SADC) – consolidation of the Free Trade Area (launched in 2008) but there are challenges eg three countries have applied for derogations with respect to tariff reductions (Tanzania, Malawi and Zimbabwe); some countries are keen to establish a SADC customs union, others are not keen.

• Tripartite Free Trade Area (26 member states of SADC, EAC and COMESA agreed in October 2008 to establish a tripartite FTA); much technical work has been done (Draft Agreement and 14 Annexes) but negotiations have not started yet

• South-South Relationships: SACU-India, SACU- MERCOSUR, China? (China-South African MOU – Sept 2010), BRICs

• Economic Partnership Agreements – no agreement yet

• Others: approaches from Japan, Malaysia, Indonesia, South Korea..

Conclusions

Key considerations

From South Africa’s Perspective - - South Africa’s domestic development challenges (employment, competitiveness) and development agenda (New Growth Path, IPAP)

- South Africa’s Regional Strategy (SACU, Tripartite FTA?)

- South-South Partnerships (SACU’s trade policy/strategy – beyond trade in goods?)