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SA-EU Trade Row Puts Customs Union At Risk

Business Day, Johannesburg

SA-EU Trade Row Puts Customs Union At Risk

25 February 2008

By Mathabo Le Roux, Johannesburg

The future of the Southern African Customs Union (Sacu) hangs in the balance, even as engagement takes place at the highest political level to save the world’s oldest customs union from collapsing.

Sacu was split last year when Botswana, Lesotho, Namibia and Swaziland broke ranks with SA and signed an interim economic partnership agreement (EPA) that would govern trade with the European Union (EU).

Now, angered by the other members’ decision to initial the pact, it is feared that SA might use their move as a reason to break up the union. This would have grave economic implications, especially for Lesotho and Swaziland, which rely heavily on revenues from the customs pool.

It is understood that EU Trade Commissioner Peter Mandelson is to meet President Thabo Mbeki this week to discuss SA’s position on the EPA. Mbeki, in his state of the nation address this month, singled out the EPA and regional integration as priorities this year, but observers said these commitments were not reflected on the ground.

Paul Kalenga, a trade adviser of the Southern African Development Community (SADC) secretariat, told a recent conference of the Trade Law Centre of Southern Africa that Sacu members needed clarity on SA’s role.

"There is an anxiety about SA’s position. The other countries do not understand what SA’s strategy is for global and regional integration," he said.

Xavier Carim, SA’s chief trade negotiator, yesterday said: "None of us are looking at the break-up of the customs union. We will try to go forward in a way that will not undermine the benefits achieved by the other countries but also not undermine Namibia and SA’s positions. The EU has indicated it is prepared to address some of the problematic issues."

At a SADC ministerial meeting in Botswana last week, SA is said to have tabled 32 pages of concerns about the EPA, and is said to be calling for the EPA to be negotiated afresh.

The demand would be unpalatable to the EU and to Botswana, Lesotho and Swaziland , which are set for a second phase of talks to thrash out terms for the liberalisation of services.

Botswana in particular is said to be angered by SA’s stance, and a source said that country was "prepared to make the break".

Sacu member countries negotiated the EPA under the SADC configuration. However, that was a configuration in name only, as several SADC members joined other configurations.

Instead of cementing unity, there is now a stalemate threatening to fracture the union.

While SA has in the past punted the EPA as an opportunity to strengthen regional integration, and motivated its bid to join the talks on those grounds, SA opted out of the EPA at the end of last year, citing unfair demands by the EU. Under article 31 of the Sacu Agreement, member states may not enter into new preferential trade agreements with third parties without the consent of other members.

"SA was initially surprised when Sacu member states broke ranks, but it can now use this to break up the union. The signs are not positive," said a commentator, who declined to be named.

But the implementation of the EPA is also severely hampered by SA’s decision to opt out. Kalenga said the region would have difficulty enforcing the common external tariff with SA outside the agreement, because of conflicting tariff regimes. The EU, for instance, agreed to the reinstating of a 5% tariff on beer, to shield Namibian brewers against European imports. However, with SA not party to the agreement, beer imports into SA attract no tariff, creating a loophole to circumvent the tariff.

Politically, the break-up of Sacu would go against commitments to forge closer regional ties, but economically SA would, in fact, benefit. It is known that the treasury is unhappy about the vast distributions from the customs pool to BLNS countries (Botswana, Lesotho, Namibia and Swaziland).