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TRADE: Southern African Rulers Eyeing the Money, Not Development

Servaas van den Bosch

WINDHOEK, Mar 28 2011 (IPS) - A new revenue sharing formula in the Southern African Customs Union (SACU) could boost development but has met with resistance from the governments of poorer states in the sub-region that are interested in “just getting the money”.

Swaziland's autocratic King Mswati III, photographed at SACU's centenary in Windhoek in 2010, has come under attack for being a spendthrift. Credit: Servaas van den Bosch/IPS

Swaziland's autocratic King Mswati III, photographed at SACU's centenary in Windhoek in 2010, has come under attack for being a spendthrift. Credit: Servaas van den Bosch/IPS

Differences over the economic partnership agreements (EPAs) with the EU nearly tore the customs union apart in 2010; now the issue of the revenue sharing formula has become equally contentious.

The South African government’s treasury department wants a revision of the formula.

Smaller member states Botswana, Lesotho, Namibia and Swaziland (BLNS) argue that SACU’s common external tariff (CET) gives South Africa an instrument to protect its own industry, while the level playing field in the union makes it hard for the peripheral countries to build their own industrial bases and compete with their much larger neighbour’s products and services.

For this they deserve to be compensated, they argue.

At the Mar. 25 heads of state meeting in Pretoria “a lot of time was spent on working out the formulation of a new mechanism, but nothing definite was decided on”, says researcher Paul Kruger of the Trade Law Centre of Southern Africa (TRALAC) near Cape Town, South Africa.

SACU stated in a communiqué after the meeting that, “the summit reiterated that the review of the revenue sharing arrangement is critical, particularly in the context of the volatility of customs revenues. The summit directed that this work be pursued and concluded urgently in line with the equitable and development objectives embedded in the SACU Agreement”.

In an article last week Catherine Grant, senior researcher at the South African Institute of International Affairs (SAIIA), and a colleague warned against an “unrealistic’’ perception of the balance of power in SACU.

“South Africa feels that it cannot be expected to receive less than that its due,” Grant tells IPS. “In the BLNS countries there is a shocking lack of understanding of the realities. The South African treasury is frustrated over having to hand over so much money, without really having control over it.

“Most notable is the case of Swaziland where there is little fiscal discipline and the budget is controlled by the (autocratic) royal family. We have seen the same frustration in the EPA negotiations, where South Africa seemed to have very little control over what other SACU members signed on to,” she adds.

“South Africa should top up the revenues for reasons of political stability and economic policy but the formula shouldn’t just focus on trade. It should rather stimulate development.”

But, “it will be very difficult to get countries on board. Previous changes in the revenue sharing formula were triggered by significant political events, such as independence struggles and the end of apartheid.

“The current revision is mainly inspired by the recession and a couple of years of experience with the current revenue formula, which South Africa now wants to renegotiate. Such changes are not significant enough to drive the process,” explains Grant.

A leaked February draft report on the proposed changes to the formula caused an outcry in the BLNS, being pitted heavily in favour of South Africa. Countries are still studying the report with a final decision expected in Apr. 2011.

One of the options on the table is to increase the development component of the pool with funds, for instance, going to regional infrastructure projects instead of state coffers. “It is doubtful that countries like Swaziland and Lesotho will be keen on that,” opines Kruger. “For them, it is more important than anything else to get the money.”

Grant foresees lengthy negotiations: “I don’t think that the report will fly. It can serve as a catalyst for discussions but the suggestions of the consultants are not anywhere near what the BLNS countries can sign up to.”

Kruger comments that, “aiming for April for finalisation of the issue of the revenue sharing formula indicates SACU wants it resolved as soon as possible. It will be very difficult to continue with other items before the issue is solved.”

These other issues include SACU’s common industrial policy, the trade facilitation programme focused on relaxing border procedures, external trade agreements and common institutions like the SACU tariff board and tribunal. There has been little movement on any of these since 2002. In their Mar. 25 statement the heads of state merely ‘‘noted’’ that work on these areas was ‘‘ongoing’’.

“There seems to be no real impetus behind any of these other issues, especially on the side of the BLNS,” says Grant. “Negotiating trade agreements with the EU and India has proved lengthy, while only South Africa has ratified the agreement with (South America’s) Mercosur.”

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