SACU Is Showing Its Age
Globalization, for better or worse, has led to larger more connected markets. Consumers have more choice, producers have more competition and states have a responsibility to ensure that their markets operate as effectively as possible. Generally, states try not to tax imports or exports, as it creates allocative inefficiencies, but still try to protect ‘critical’ domestic industries by other means. These can take the form of non-tariff barriers, like bans on imports or special licencing requirements, but trade can also be frustrated by inefficient border processes. The vast majority of industries, those looking for an open market and those looking for protection, requires their inputs and/or outputs to move as swiftly across borders as possible. The increased ease of moving goods across borders is partially what drives states to progress up the economic integration ladder and, in the process, helps address market distortions.
In this regard SACU has started to fall behind with dated and uncoordinated process between member states. The five-member state customs union often boast that they are the world`s oldest custom union, technically originating from the 1889 Customs Union Convention between the British Colony of Cape of Good Hope and the Orange Free State Boer Republic. Unfortunately, SACU’s trade policies are equally dated and could be at risk of being over taken by more dynamic and comprehensive trade agreements.
Since 2004 customs modernisation has been in the SACU Council’s crosshairs. The original customs modernisation initiatives focused on the development of more coordinated customs operations and moving towards joint customs controls, but to date the region has only been able to implement standardized customs clearance and common transit procedures (the SAD 50x documents for those in the know). While member states expressed a keen interest in completing the remaining initiatives, capacity constraints at various levels have seriously hampered progress.
First there are different levels of capacity at state level. This is evident in the staffing of border posts, the state of infrastructure and facilitates at borders, availability (or lack thereof) of supporting departments and agencies at border posts, uncoordinated customs legislation and the different customs management systems used by member states. These all contribute to a frustrating border crossing experience, especially for frequent traders who often deal with a lot of administrative duplication, queuing and delayed clearance. While these seem like obvious observations, set in stone due to the difference in member states’ financial capacities, there are relatively simple (yet technical) solutions to address these issues.
The ideal that a number of countries are working towards is the establishment of joint border posts or other initiatives to improve coordination. This ensures that there is no duplication of processes or inspections but requires both sides of the border to have complete faith in their counterpart’s ability to implement and uphold the agreed-on customs policy. Beyond the trust factor, success of pilot projects on one-stop border posts have been mixed and SACU does not have the legislative framework to roll out a regional programme yet. There are however intermediate steps that can be implemented between SACU member states which should help to reduce import-export process duplication. For example, the automatic exchange of customs data would allow traders to submit a single customs declaration that is automatically distributed to the partner member state for processing. Member states can also better coordinate on risk management and enforcement to reduce duplicate inspections. The legislative framework to implement these changes, Annex E to the SACU 2002 agreement, has already been signed by all member states and according to the secretariat entered into force on the 8th of March 2017, yet members have not implemented it.
Second is the different levels of capacity of each member’s private sector. While South Africa’s private sector bodies, industry associations and chambers of commerce, have some capacity and opportunity to discuss issues around border (in)efficiency in South Africa and with other groups in the SACU region, the other member states’ private sector bodies often lack the resources to attend multiple meetings and participate in regional debates.
Border issues are often discussed at public forums and business associations and help drive incremental improvement in the process, but these platforms by their nature only address one side of the coin. Discussions at these fora tend to be dominated by larger traders, often leaving smaller traders on the margins.
While many traders make their living within the SACU region, the much larger SADC market looms just beyond that. SADC has its own unique set of issues when it comes to enforcement and arbitration of the agreement, but a common thread among traders in SACU is the desire to trade with the broader SADC markets. This adds an additional burden on private sector bodies to participate in regional fora which stretches their time, finances and personnel even further. One possible solution is to emulate the East African Community (EAC). They host annual meetings with the private sector in each member state under the leadership of the Secretariat which allows for fairly low cost, high impact consultations that reach a wide range of private sector players.
Finally, the SACU secretariat itself faces capacity constraints. Currently there are only three full-time staff members in the SACU Secretariat responsible for trade facilitation activities; these include the Deputy Director of Trade Facilitation, a Customs Specialist and a coordinator for the WCO-SACU Connect project (a Swedish funded capacity-building project for SACU’s customs). Having only three full time staff members severely limits the secretariat’s ability to engage on a regular basis with national level stakeholders.
The issues of “bureaucratic delays and red tape” has been on the trading community’s radar for some time now but the customs union continues to struggle with a lack of political momentum, especially compared to other more dynamic trading blocs like the EAC. Throw in the lure of larger markets like SADC and the potential Tripartite Free Trade Area and African Continental Free Trade Agreement, and SACU’s priorities in the short term seem likely to remain on maintaining the status quo with regards to the distribution of the common revenue pool at the expense of the development of its regional value chains.