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Q&A: Regional Trade Integration Is About Give and Take

Servaas van den Bosch interviews TSWELOPELE MOREMI, executive secretary of the Southern African Customs Union (SACU)

WINDHOEK, Aug 25 2009 (IPS) - It’s "do or die" for the world’s oldest customs union. Disagreement over the development consequences of the EU’s proposed economic partnership agreements (EPAs) with African states has threatened to split the Southern African Customs Union (SACU) a year before its centenary in 2010.

Botswana, Lesotho and Swaziland unilaterally signed a controversial interim EPA with the EU. The other SACU members, Namibia and South Africa, want the most favoured nation (MFN) clause out of the agreement. The MFN automatically extends SACU's trade allowances to third parties to the EU.

For Tswelopele Moremi, who is at the helm of the SACU Secretariat in Windhoek, it’s time for the customs union to put its money where its mouth is. If the five countries can overcome their differences, it will propel the union forwards as a tool of regional integration.

IPS: How much pressure has the signing of the interim EPA put on SACU’s Common External Tariff (CET) and the future of the union? Tswelopele Moremi (TM): SACU is still in business, but it’s not business as usual. Article 31 of the 2002 Agreement allows countries to enter into preferential trade agreements unilaterally as long as they have the blessing of the other members.

This go-ahead was given at a high level ministerial meeting in Gaborone in May. I do not think the CET is in jeopardy. Different EU trade regimes have co-existed within SACU before, such as South Africa’s Trade and Development Co-operation Agreement (TDCA) (with the EU) and the Cotonou agreement (between the EU and the rest of SACU).

The signing of the interim agreement does not necessarily mean a split in the union. It does show that countries interpret global developments differently and that the concept of further integration needs to be defined.

The bigger picture is that member states should speedily work towards concluding the EPAs with the EU. The EPA is not only necessary from a World Trade Organisation (WTO) perspective but will also align the TDCA and the interim EPA, strengthening regional integration.

IPS: Isn’t it unlikely that South Africa will sign any EPA that includes the most favoured nation (MFN) clause? TM: The MFN and other issues that were identified in Swakopmund in March will need to be resolved before a final EPA can be concluded. A new round of negotiations starts in September 2009.

There should be more clarity on where everyone stands by the end of the year but there is goodwill among the member states.

IPS: What about reports that the system of enhanced payments — that transfers the bulk of the revenue pool to Bostwana, Lesotho, Namibia and Swaziland — has lead to tensions in SACU? TM: South Africa is the largest contributor to the pool and takes out little. The smaller countries, on the other hand, have ceded much autonomy to the Union and are compensated for that fact.

Not surprisingly issues around the revenue will come up from time to time, but the member states have not formally indicated a wish to change the sharing formula. Of course the 2002 Agreement, implemented in 2004, has radically changed SACU.

The countries are engaging each other on equal footing and on a deeper level. And this goes to the heart of what integration is about.

It’s more than just revenue sharing. It’s about putting up common policies and institutions, about facilitating trade between the members and the outside world. It’s also about recognising different levels of development. Sometimes a country is ready to move on, while others are not. It is a process of give and take.

IPS: This July it was five years ago that the Agreement entered into force. What has been accomplished since 2004? TM: We have concluded trade agreements with the European Free Trade Area (EFTA) and Mercosur and signed a Trade, Investment and Development Cooperation Agreement (TIDCA) with the U.S., which we see as a stepping stone to a future free trade agreement.

Currently we are negotiating a preferential trade agreement with India, which we think will have great benefits for the region.

The establishment of the tariff board and the development of common policies may not have progressed as much but these things take time. In June we advertised a tender to develop a common industrial policy. It’s now time to implement the 2002 Agreement as soon as possible.

IPS: SACU revenue is reportedly declining, by how much and what is the impact on national budgets? TM: Only after the audit of the revenue pool in October we will know the exact figures and their impact. However, it is clear that SACU revenues are lower than estimated because of the global crisis. Revenue has always fluctuated, but the ups and downs are more visible since 2002.

The past couple of years we have seen extremely big growth of the pool. At one point it would have to come down.

We have to realise that in this era of reciprocity (where countries grant each other equal trading allowances) initiated by the (WTO) Doha Round, the trend is towards liberalisation of markets and taking down of tariff barriers. This will also impact negatively on the revenue stream, although income from excise might go up.

If SACU is enlarged or morphs into a larger SADC customs union, revenue has to be shared with more players. This is why there is an additional impetus in accessing larger markets as a customs union.

IPS: What role can SACU play in the SADC customs union that is set for 2010? TM: The increased interest in SACU as a tool for regional integration shows that we are really more beautiful than we give ourselves credit for. After all, we bring a 100 years of experience to the table.

Establishing a customs union is more than simply declaring it. Institutions need to be built, policies developed. It’s a process that takes years. In April 2009 we passed a WTO review of the 2002 Agreement with flying colours, which shows how far we have come.

But countries will have to think carefully about the implications of deeper integration. Once a country has joined a customs union, whether it is SADC (Southern African Development Community), the Common Market for East and Southern Africa (COMESA), or SACU, there is no way back, as countries cannot belong to more than one customs union.

There is a recognition that for SACU to play a role in this process it needs to be further strengthened, also politically. Next year will be a critical for that.