Cape Town — The beleaguered Southern African Customs Union (SACU) has to face up to serious challenges at its upcoming heads of state meeting in October, including the divergent interests of its member states and the lack of coordinated industrial policies in the union.
In Oct 2010 SACU heads of state will meet again to discuss progress on critical issues in the customs union, such as the raging debate on the revenue sharing formula that sees significant capital flows into the national budgets of the small states of Botswana, Lesotho, Namibia and Swaziland (BLNS).
High-level intervention could assist in pushing through the structural changes that the customs union has embarked on. "One of the key challenges in SACU is lack of leadership on how it can be a platform for deeper regional integration," stated Trudi Hartzenberg, director of the Trade Law Centre of Southern Africa (Tralac). The non-profit Tralac provides capacity-building support to governments.
The economic partnership agreement (EPA) negotiations with the European Union (EU) brought the underlying dissonances in the sub-regional organisation to the fore.
A key difference among the member states, of which the current discussion on revenue sharing is a symptom, is the divergent views on the roles of the customs union.
"The labour union movement in South Africa takes exception to South Africa making transfers to countries with a higher GDP (gross domestic product) per capita, such as Botswana," commented economist Colin McCarthy from Stellenbosch University near Cape Town, South Africa.
Pretoria is said to be getting fed up with functioning as "the regional ATM", or automatic teller machine, especially in the case of Swaziland where revenues flow straight into the coffers of the autocratic royal rulers. Last year South Africa contributed 98 percent of the revenue pool while taking out only 22.5 percent.
"Where the BLNS states need the revenue to complement their narrow tax bases, South Africa sees import tariffs as an instrument of industrial policy," McCarthy spelled out the fundamental difference.
"Article 38 of the SACU Agreement requires member states to develop such industrial policies geared towards a more equal distribution of economic activity in the region. But this cannot happen through thumb sucking and crystal ball gazing. There is a need for policies and guidelines on which national SACU institutions can base recommendations."
In South Africa, industrial policy is hotly debated and politically "sensitive", as evidenced by the mid-September 2010 release of an economic policy paper, putting forward views on industrial development, by the most powerful trade union federation in the country called the Congress of South African Trade Unions (Cosatu).
"The region will certainly not be unaffected by what comes out of this discussion, but how often are the BLNS states consulted? I expect a number approaching zero," opined McCarthy.
He pointed out that after eight years SACU still does not have a tariff board or other institutions such as a tribunal. "In the BLNS states I do not detect any seriousness around this, while in Pretoria senior government officials are against a tariff board. The question arises whether South Africa really would be willing to sacrifice its policy space to such institutions?"
"The space for cosily muddling through in SACU will become smaller as developments around us take place," remarked Tralac associate professor Gerhard Erasmus. "The EPA negotiations were a traumatic exercise which taxed the relationship between the members. They served as a sober reminder of what it takes to be part of a new world."
This seems borne out by SACU's lack of progress in closing preferential trade agreements (PTAs) -- not just with EU but with virtually every major trade partner. A new PTA with Mercosur, the largest trading bloc in South America, was signed in 2008 but analysts argue the agreement is not as beneficial as it could have been, as exhibited by a reluctance in the BLNS to ratify the pact.
A PTA with China is equally problematic. "The Chinese feel that South Africa backtracked on an agreement, not appreciating that it is, domestically speaking, politically impossible right now," noted South African Institute of International Affairs (SAIIA) research associate Catherine Grant. The non- governmental SAIIA conducts international relations research.
"SACU countries also have different levels of engagement with China, such as Swaziland that does not recognize the one-China policy (due to trade relations with Taiwan). China also elicits a lot of concern from the labour and manufacturing sectors."
A PTA with the U.S. proved a bridge too far even though the U.S. and SACU signed a trade, investment and development cooperation agreement (TIDCA) in 2008. However, during meetings at the U.S. embassy in Pretoria it is apparently often bemoaned that SACU won't engage on the TIDCA.
A trade deal with India has been under negotiation for years but is met by a lack of enthusiasm from the private sector.
"The trade agreement with India illustrates the difficulties of SACU operating as a coherent bloc," commented trade expert Mike Humphrey.
"South Africa uses the high common external tariff to protect its markets. It makes it hard for a country like Swaziland to import primary industry manufacturing goods, such as fertilizer from India. This has led to very fraught negotiations where the Indians were thrown out of the room and we spent hours and hours fighting among ourselves."
It indicates all is still not well within SACU, with South Africa not engaging the other members in its industrial development plans and the BLNS not putting forward any industrial policy vision.
Even internal border controls, as several experts pointed out, are more arduous than 10 years back, indicating increased use of non-tariff barriers among the member states. "There is a danger that South Africa is retreating in a laager, protecting borders and keeping up competition," argued Humphrey. Too often, he said, the debate in South Africa "is about SACU, rather than with SACU".