SADC members watch SACU revenue sharing model in preparation for new customs union
By Kizito Sikuka
Southern Africa is closely watching efforts by the oldest customs union in the world – the Southern African Customs Union (SACU) – to review its revenue sharing agreement.
This is because the Southern African Development Community (SADC) has similar plans to develop its own customs union.
One of the key pillars of a successful customs union is a well-functioning revenue sharing formula that ensures an equitable and acceptable allocation of funds among the participating countries.
SACU operates as a customs union of South Africa, Botswana, Lesotho, Namibia and the Kingdom of eSwatini under a renewable agreement, and is governed at present by an agreement negotiated in 2002.
The main provisions are that the tariff regime in force in South Africa applies to the other countries, serving as a common external tariff; and that customs and excise revenue collected in member states is paid into a Common Revenue Pool (CRP) and distributed according to a formula weighted in favour of Botswana, Lesotho, Namibia and eSwatini (the BLNS countries).
This weighting is intended to compensate the smaller SACU countries for the price-raising effects of being drawn behind South Africa’s protective tariff regime, and for the loss of sovereignty over tariff and trade policy issues.
According to the SACU Agreement of 2002, the revenue-sharing formula uses three components to calculate revenue shares for member states. These are a customs component, an excise component and a development component.
Using the customs component, revenue is allocated on the basis of the share of each country in intra-SACU imports, while the excise element allocates the funds on the basis of each country’s share of Gross Domestic Product (GDP).
Revenue allocations using the development component are fixed at 15 percent of total excise revenue and distributed according to the inverse of per capita GDP of each country.
Under the present arrangement, South Africa is the custodian of CRP and all customs and excise duties collected in the common customs area are paid into the South African National Revenue Fund. The revenue is then shared among SACU member states according to the revenue-sharing formula as described in the agreement.
Only the shares for the BLNS countries are calculated, with South Africa receiving the remainder.
The BLNS countries have complained over the years that the revenue sharing formula does not fully compensate them and that there is a lack of consultation by South Africa of its SACU partners.
Another complaint is that the countries allege that there are various non-tariff barriers preventing their access into the South African market.
South Africa has complained, in turn, that the weighted allocation of excise as well as customs duties to the BLNS has become an increasing burden on the South African fiscus, and that SACU has become unaffordable.
The relationship between South Africa and its SACU partners is further complicated by the former’s bilateral trade pact with the European Union.
An important feature of the South Africa-EU trade agreement is the implicit asymmetry of trade liberalisation between the EU and the BLNS countries.
Because of the SACU, the South Africa-EU agreement effectively grants the EU free access to the markets of the BLNS countries but does not grant the BLNS countries reciprocal access to the EU markets.
Members of SACU have been engaged in consultations over the past decade to address some irregularities in the revenue-sharing agreement.
In an effort to address these irregularities, the five member states have been in negotiations to review the revenue-sharing agreement to ensure that it is equitable.
According to the agenda of the 6th SACU Summit of Heads of State and Government scheduled for Gaborone, Botswana on 29 June, the leaders will review the revenue-sharing formula, including the long-term management of the CRP.
The review of the SACU revenue-sharing formula is aimed at investigating financing mechanisms to support industrial and infrastructure development in the union.
Another topical issue during the proposed review will be what happens to the formula in the event of the expansion of the SACU membership.
Furthermore, it is meant to ensure that no SACU member state should be worse off under the new arrangement. Therefore, the new formula should be developmental in focus and not simply distributive.
SACU was established in 1910, making it the world’s oldest Customs Union. Its Secretariat is based in Windhoek, Namibia.
The outcome of the forthcoming SACU summit will be of interest to SADC, which has plans to establish its own customs union.
All the five SACU countries, namely Botswana, eSwatini, Lesotho, Namibia and South Africa, are members of SADC, hence the proposed review of the revenue-sharing agreement should provide some important lessons for the regional body when it finally launches its own customs union.
The launch of the SADC Customs Union was initially scheduled for 2010. However, member states asked for more time to allow them to implement the SADC Free Trade Area that was launched in 2008.
Source: Southern African Research and Documentation Centre, www.sardc.net