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Effort Afoot to Save Rickety Southern African Customs Union

Published on Friday 2nd October 2009

Southern African countries have buried the hatchet in an effort to preserve the Southern African Customs Union (SACU), one of the few building blocks of regional integration. Its chiefs vehemently denied reports that Pretoria wants to pull out of the customs union.

"It's interesting that outsiders have that perception," marvelled Namibian minister of Finance Saara Kuugongelwa-Amadhila, since Jul 15 chair of the embattled customs union, at a Sep 30 press briefing in Windhoek.

"I cannot imagine South Africa would want to stay in this arrangement if it was losing out and only the other countries were benefiting," she said.

"Obviously, we in Namibia don't think we are benefiting more on the back of South Africa either. There is no evidence to support that perspective," Kuugongelwa-Amadhila hastened to add.

A relatively cheerful Kuugongelwa-Amadhila, flanked by SACU executive secretary Tswelopele Moremi and Namibian permanent secretary of finance Calle Schlettwein, reported back on the Sep 17 SACU council meeting in Ezulwini, Swaziland.

There is perhaps reason for relief among the Namibians. Locked between biggest trading partner South Africa and the interim economic partnership agreement (EPA) signatories Botswana, Lesotho and Swaziland, Namibia could arguably make or break the process of regional integration. An open clash between Botswana and South Africa in Swaziland certainly might have forced it to pick sides.

But the show of unity doesn't conceal that not all is rosy in SACU, which hopes to celebrate its centenary in 2010. Before the month is out, South Africa will indeed submit a proposal to alter the revenue-sharing formula.

And the 2002 agreement - not yet fully implemented - will also be up for review again. Meanwhile, a dispute about revenue from past years is reported to have been referred to a group of experts for advice.

On the other hand, the threat posed to the common external tariff (CET) by a divergence in 53 tariff lines between the EPA signatories and the other states seems to have nobody overly concerned. "If we address this as a group no issues will arise," maintained Kuugongelwa-Amadhila.

Despite the talk of stepped-up border controls in South Africa, the expectation is that SACU should be able to handle the tariff discrepancy in the same way it has dealt with the challenges that the South Africa's trade and development cooperation agreement (TDCA) posed in the past.

The minister, however, reiterated that Namibia's position on the European trade deal remains unchanged: "Signing the EPA without addressing outstanding issues could be detrimental to our development."

Schlettwein indicated that, in Namibia's case, decreased revenue from the pool could be absorbed without new taxes, given the prudent financial stewardship and accumulated reserves in the past. "We can also forfeit revenue that has not been paid out yet, or agree to take a smaller cut in the future."

Because of the recession, the SACU pool is down with one billion dollars. For Namibia, this represents a loss of close to 170 million dollars.

If anything, the trade row between South Africa and Botswana seems to have given impetus to SACU that is looking to adapt to new economic realities. The Namibians seem keen to push the union forward as a tool of regional integration amidst signs of stagnation on this front within the Southern African Development Community (SADC).

The SACU commission, led by Schlettwein, is tasked to come up fast with a blueprint to overhaul the customs union and "position it at the centre of the SADC economic integration agenda," according to Kuugongelwa-Amadhila.

"The countries have made a further commitment to deepening integration in the region. Botswana really did not say that they would not make the commitment up to that level," she said, rebuking earlier reports that the Batswana have second thoughts of merging into a planned monetary union.

Peter Draper, head of the trade programme of conservative think tank the South African Institute of International Affairs (SAIIA) is more sceptical about Botswana actually adopting the rand, but does not denounce SACU's regional aspirations.

"It's not an unrealistic hope," he said. "I have long thought SACU should be the basis of a Southern African regional integration bloc. For countries like Zimbabwe, which is practically part of the rand zone anyway, it would make sense to join such a monetary union."

"One should give SACU a chance on this," said independent trade expert and board member of the Namibian Manufacturing Association (NMA) Wallie Roux.

"The threat of converting the customs union into a mere free trade area (FTA) from the side of the South Africans seems to have woken up the other countries in Swaziland to the serious implications of losing the benefits of the union.

"Hence the talk about common concern and commitment to make things work, but we don't know how long it will hold. If the political will is there and a common negotiating mechanism can be made to work, there is a good chance for expansion."

Roux adds that a possible route in revenue sharing revision is to put more emphasis on the unused development component that the 2002 SACU Agreement provides for. "It would make sense to divert some of the funds into that component so that it's used for development, rather than filling the government's coffers."

The willingness of Botswana to negotiate with the EU on "new generation" issues has spurred the bloc on to accommodate services in its trade agreements.

Moremi: "The 2002 agreement only covers trade in goods, yet when you look at international trade it's clear that services are increasingly important. The council has recognised that this must be accommodated."

But this is not a process that should be rushed, wrote Niki Cattaneo of Rhodes University's Economics department recently: "The existence of widespread coordination failure suggests that thoroughgoing liberalisation, even if it was politically feasible, would not necessarily result in investment flowing to where it is needed," she warned.

According to Cattaneo the sector-based liberalisation of services on a regional scale offers a better bargaining position and economy of scale advantages where it concerns regulation.

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