Transcript RECENT ECONOMIC AND POLICY DEVELOPMENTS September …

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Introduction
The 1910 Agreement and its challenges
The 1969 Agreement and its shortcomings
The 2002 Agreement and its shortfalls
Assessment of SACU’s impact on the
Botswana
Economy
The Likely Future Prospects
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The Southern African Customs Union Agreement
(SACUA) effectively dates back to 1893, when the
Bechuanaland Protectorate entered into a customs
union with Basutoland, the Cape Colony and the
Orange Free State (Hudson, 1981). It is the oldest
CU.
Following the formation of the Union of South
Africa in 1910, the first formal customs union
agreement was signed between South Africa,
Bechuanaland Protectorate, Basutoland and
Swaziland (ibidem)
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We attempted to identify the economically
important issues for the SACU Agreement
throughout its long history; its impact on the
Botswana economy and what (we believe) the
future holds for the SACU Agreement.
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The 1910 Agreement provided for the following
(ibidem):
(a) The absence of customs duties on goods
originating from within the custom union
members.
(b) That all the four member countries would
charge the same customs duty on goods
originating from outside Common Customs Area
(CCA) and the same rate of exercise duty on goods
produced within the CCA – provided for a common
external tariff (CET)
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(c) That South Africa would be the custodian of
the duties collected which will then go into a
revenue pool.
(d) Each member country would receive a fixed
percentage of the total amount of the duty
collected on an annual basis.
(e) The fixed percentages were to be immutable
even if the patterns of consumption of dutiable
goods among the member countries changed.
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The 1910 Revenue sharing formula was:-
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BLS ,RSA
 Bot  Les  Swz  RSA
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Where Botswana’s (then Bechuanaland)
share was 0.28 percent, Lesotho (then
Basutoland) was 0.88 percent, Swaziland
was 0.15 percent and the bulk of the
revenue 98.69 percent went to South Africa.
The percentages were based on estimates
of duty on goods consumed by each
member states during the period April
1907- March 1910.
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After independence in 1966, Botswana, Lesotho and
Swaziland (BLS), were increasingly dissatisfied with
the 1910 Agreement on account of the following:
 revenue accruing to BLS was inconsistent with their
shares of total imports in the Customs Union
 The CET had a significant price-raising effects on
their imported goods
 That there was an industrial polarization effect
arising out of the SACU Agreement.
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persist complaints by the BLS members, led
to the 1969 Agreement.
The unfortunate thing about the 1969
Agreement was that it merely confined itself
to the revenue aspect and ignored the trade
related shortcomings (e.g. the unilateral
setting of tariffs by RSA).
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A new RSF was introduced in 1969, which had
a compensation factor- which was meant to
cover for three factors faced by the BLS
members (i.e. price raising effect of the CET;
industrial polarisation; and loss of fiscal
discretion)
Just like the 1910 Agreement the 1969 had
major shortings.
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Concerns identified by the BLS members as
well as the relatively newly independent
Namibia were that amongst others 1969
agreement:-
◦ Did not provide for a dispute resolution mechanism
◦ The unilateral setting of the CET by RSA was stifling
FDI in smaller members
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◦ SACU was increasingly perceived as denying the
BLNS members access to cheaper imports- just to
protect inefficient RSA producers
◦ The compensation factor was deemed inadequate,
say in Botswana, where Leith (1992) found that
Botswana in 1987 had paid R371 million above
world market prices on RSA imports, while receiving
only R296 million as revenue
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In 1994 the re-negotiation of the 1969
Agreement started- resulting in the 2002
Agreement.
2002 Agreement covers three aspects,
thus:- governance and administration;
economic policies and regulation; and a
revised RSF
The main objectives of the 2002 SACUA as
captured under Article 2 are:
◦ To facilitate movement of goods between
member states;
◦ Democratise SACU to ensure equitable trade
benefits to members;
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◦ Promote fair trade in SACU- enhance economic
development, diversification, industrilisation and
competitiveness of member states;
◦ Increase investment opportunities within the CU;
◦ Facilitate equitable sharing of revenue arising
from customs, excise and additional duties levied
by members; and
◦ Facilitate the development of common policies
and strategies.
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The institutional framework of the SACU
◦ Council of Ministers;
◦ Customs Union Commission –Senior government
officials
◦ Secretariat – administrative body
◦ SACU Tariff Board- responsible for the setting-up
of CET
◦ Tribunal –adjudication of disputes between member
states
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2002 SACU RSF- what accrues to each
member states is calculated after the
subtraction of the operating costs of SACU.
The 2002 SACUA revenue sharing formula
has three components (customs component,
excise component and the development
component).
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customs component- custom duties are
distributed to each country in proportion to
its share of intra-SACU imports;
excise component- 85 percent of excise duty
collected within SACU is distributed in
proportion to each country’s GDP share to the
total SACU GDP .
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Development component- 15 percent of
excise duties collected within SACU, and
is distributed inversely to the GDP per
capita.
Formula is:-
  i   i   i
i
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The 2002 RSF has a deliberate bias towards
the smaller members. It is only in SACU that
intra-customs union imports are used as a
basis for revenue sharing. However, this was
done to address issues such trade diversion,
polarisation, and price raising effect of the
CET.
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The inclusion of the excise componentwhich is not trade related, was also
intended to mitigate cost of SACU
membership to the BLNS states.
Furthermore, the RSF has a development
component- which is biased towards the
least developed members (Botswana with
the highest GDP per capita in the region
gets the smallest amount from this
component)
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Conventionally the economic gains of a
Customs Union are:-
◦ Trade creation:- when citizens of a member state
switch from consuming goods produced in the
domestic market (at a relatively higher cost) to
goods imported at a lower cost from a partner
country. (the opposite of trade creation is trade
diversion).
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◦ Dynamic gains/ effects:- these include propensity
for higher output growth, investment and
development. Membership to CU will result in
income growth through expansion of market and
productive capacity; increase competition and
productivity-which can stimulate greater
investment.
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The question that we ask is “Has Botswana
been able to attain the economic gains
associated with a CU, from her 100 years
membership to SACU?”
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We accept that from a revenue generation
perspective, SACU receipts remain significant
to the government revenue.
Membership to SACU has also provided
Botswana with ready access to South African
Market.
BUT! Have we been able to fully attain the
benefits associated with a Customs Union?
The debate continues…
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Third party agreements have proven to be a
major challenge to SACU- e.g.. The SADC –EU
Economic Partnership Agreement (EPA);
reconciliation problems with South Africa’s
Trade, Development and Co-operation
Agreement (TDCA) with the EU.
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The proposed coming into existence of the
SADC customs union in 2010 implies the
demise of SACUA.
The on-going review of the RSF
Perceptions that SACU payments are a fiscal
burden to South Africa by the South African
public and parliament .
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Coming up with common trade and industrial
policies for SACU.
it would seem that SACU faces an uncertain
future owing to the advent of free trade
negotiations and the proposed SADC customs
union, whose co-existence with SACU is
impractical .
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Thank you for your valuable time!
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