History of SACU
As the world’s oldest custom union, the Southern African Customs Union (SACU) dates back to 1889 Customs Union Convention between the British Colony of Cape of Good Hope and the Orange Free State Boer Republic. A new agreement, signed on June 29, 1910, was extended to the Union of South Africa and the British High Commission Territories (HCTs), i.e. Basutoland (Lesotho), Bechuanaland (Botswana), and Swaziland, South West Africa (Namibia) “was a defacto member, since it was administered as part of South Africa” before it became a dejure member. The primary goal was to promote economic development through regional coordination of trade.
The 1910 SACU Agreement which was in effect until 1969, created the following:
- A common external tariff (CET) on all goods imported into the Union from the rest of the world; a common pool of customs duties as per the total volume of external trade; and excise duties based on the total production and consumption of excisable goods.
- Free movement of SACU manufactured products within SACU, without any duties or quantitative restrictions.
- A revenue-sharing formula (RSF) for the distribution of customs and excise revenues collected by the union.
As early as 1925, South Africa adopted import substitution industrialization (ISI) policies, backed by the common external tariffs on non-SACU products. These measures guaranteed a regional market for South African manufactures, while relegating the British High Commission Territories (HCTs) to producing primary commodities. Under apartheid, South Africa was the sole administrator of the common SACU revenue pool, setting SACU import duties and setting excise policy.
With the structural issues of management and decision-making processes and the issues arising from the inequitable revenue sharing, the British High Commission Territories (HCTs) constantly called for a revision of the 1910 agreement. Negotiations to change the 1910 Agreement began after the HTCs gained their independence in the early 1960s, resulting in the 1969 Agreement.
The 1969 SACU Agreement, Signed by the sovereign states of Botswana, Lesotho, and Swaziland (BLS) and South Africa, on December 11, 1969 provided two major changes:
- The inclusion of excise duties in the revenue pool and
- A multiplier in the revenue sharing formula that enhanced BLS revenues annually by 42 percent.
However, similar to the 1910 agreement, South Africa retained the sole decision-making power over customs and excise policies. It also retained open access to the BLS market, while the high common tariff raised barriers for Southern African neighbors’ exports to SACU. These trade-diverting effects benefited South African manufacturers.
Because of the “absence of a joint decision-making” process, the BLS requested factoring compensation into the revenue sharing formula, in order to address the loss of fiscal discretion (From 1969 onwards), the BLS expressed their concern with the following three key issues.
- No joint decision making processes – Prior to 2002 SACU was administered on a part-time basis by annual meetings of the Customs Union Commission and there were no effective procedures to ensure compliance or resolve disputes.
- Revenue sharing formula - The issue of most concern in the 1969 Agreement was the Revenue Sharing Formula (RSF), which determined each country’s share of the Common Revenue Pool. Following negotiations, the RSF was amended in 1976 to include a stabilization factor that ensured that the BLS received at least 17 percent, and at most 23 percent, of the value of their imports and excise duties.
- Question of external (outside SACU) trade - The BLS argued that South Africa consistently entered into preferential agreements which benefited only one of the five members.
With the independence of Namibia in 1990 and the end of apartheid in South Africa in 1994, SACU members embarked on new negotiations in November 1994, which culminated in a new SACU agreement in 2002.
The 2002 SACU Agreement addressed the following three outstanding issues.
- Joint decision making processes: Article 3 established an independent Administrative Secretariat to oversee SACU with its headquarters in Windhoek, Namibia. Article 7 created several independent institutions including a Council of Ministers, a Customs Union Commission, Technical Liaison Committees, a SACU Tribunal and a SACU Tariff Board.
These institutions are designed to enhance equal participation by member states. The 2002 Agreement also provides for policy coordination in agriculture, industry, competition, and unfair trade practices, and protection of infant industries.
- New Revenue Sharing Formula: Revision of the RSF to include a customs excise and development component.
- Question of external (outside SACU) trade: the need to develop strategies that enhance the political, economic, social, and cultural integration of the region without jeopardizing the economies of the smaller states.