Tuesday, May 11, 2021

New Tripartite Free Trade Area threatens future of SACU

The Tripartite Free Trade Area, signed recently by some of the regional trading blocs, has already invited questions that do not seem to have answers on the future of the South African Customs Union (SACU). SACU is the oldest customs in the world and has of late become and major revenue earner for Botswana’s treasury with receipts rising from P13.8 billion in 2013 to P15 billion in 2014.

But the newly launched TFTA that brings together 26 African countries, a group that includes member states of the East African Community (EAC), Southern African Development Community (SADC), and the overlapping Common Market for Eastern and Southern Africa (COMESA) have brought doubts about the future of SACU. A note by Gerhard Erasmus of Stellenbosh: Tralac titled “The Implications of the Tripartite FTA for SACU” suggests that the TFTA would divide the customs unions as some countries have signed; others pledged to sign while giants like South Africa have declined to sign.

“One of the reasons why caution is called for has to do with the challenges involved in finalizing tariff offers and rules of origin; which are the basic building blocks of an FTA,” argued Erasmus.

According to Erasmus, the TFTA is unfinished as there are still to be talks on phase 1 on the trade in goods.

“The TFTA is not being launched as one single FTA. The parties will be those states which will ratify the agreement. Sixteen states have signed the text; entry into force requires 14 ratifications. Of the SACU members Botswana, Namibia and Swaziland have signed or have indicated that they will sign,” stated Erasmus.

“South Africa and Lesotho have not done so. The existing Regional Economic Communities (COMESA, the EAC and SADC) will continue to exist and will not be parties to this agreement.”

He added that the FTA can be achieved if South Africa and SACU become party to the agreement as it is not known whether Africa’s second largest economy will sign or not.

“South Africa may decide to continue to participate in the negotiations to complete Phase 1 (the built-in agenda) but will presumably wait for a final outcome on Annex 1 on the Elimination of Customs Duties, Annex 11 on Trade Remedies and Annex 1V on Rules of Origin before a decision on signing and ratification is taken”.

“This has direct implications for SACU; which is a customs union. It has a common external tariff (CET) and a single customs territory. Trade in goods arrangements with third parties have to be concluded jointly”.

SACU guiding principles prohibit members from joining on individual basis trading arrangements such as the TFTA. “South Africa (and Lesotho) can insist that not only should TFTA offers and proposals be made as joint SACU offers (as has happened during the negotiations), but that the same rule applies to signing and ratification,” argued Erasmus.

“If the final rules of origin are restrictive, with little being offered in terms of new tariff concessions, South Africa is likely to sign. The BLNS states will follow suit (Article 31 of the SACU Agreement compels them to do so); unless there is a serious new political development within SACU and it ceases to function as the customs union it has been for long”.

The problem is that South Africa does not want to continue with the present SACU Revenue Sharing Formula. “It would not be possible to retain SACU while only some of its members join the TFTA. On this score there might be some serious internal SACU discussions; South Africa has already indicated that it wants to re-negotiate the SACU Agreement”.

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