When Botswana, Lesotho and Swaziland attained independence in the nineteen sixties a new Agreement was negotiated and signed in 1969. Although the 1969 Agreement was seen as an improvement on the old agreement, South Africa continued to play a dominant role for which specific provisions were made. At that time the agreement could best be seen as an instrument to bridge the gap between politically unfriendly neighbours that shared an integrated economy dominated by the apartheid government in South Africa. This situation made it impossible to renegotiate the 1969 agreement, although everyone was convinced that the agreement could not ultimately survive the text of time. In 1990 Namibia joined the SACU as an independent state With the same rights and obligations as those of Botswana, Lesotho and Swaziland.

It was only when South Africa became a state 1994 that the political situation had changed to such an extent that serious negotiations could be initiated.

The task proved to be more difficult than anticipated and it was only in October 2001 when SACU Ministers could agree on and initial a new agreement. The Agreement was afterwards approved in principle by the different governments involved and amended to bring it in line with international law and standards On 21 October 2002 the new Agreement was signed by Heads of State/Government in Botswana.

The main objectives of the new agreement are to -

The main implications of the new Agreement are that -

After approval of the Agreement by Parliament, the SACU Agreement will be enacted into law when it is published in the Government Gazette in terms of section 49 of the Customs and Excise Act, 1964 (Act No. 91 of 1964). This section provides that international agreements, including customs union agreements, are enacted when they are published by notice in the Government Gazette in Schedule No.10.

The Chief State Law Adviser has expressed the opinion that no provision of the

Agreement is in conflict with the domestic law of the Republic of South Africa and

drew attention to the fact that section 23 1 of the Constitution of the Republic of South

Africa (Act No. OS of 1996) must be adhered to.

The Office of the Chief State Law Adviser (International Law) in the Department of Foreign Affairs (DFA) indicated that the Agreement had been scrutinised and had been found to be in compliance with international law. The DFA, furthermore, expressed the opinion that the new SACU falls within the purview of section 231(2) of the Constitution.

Copies of the two letters in which these legal opinions were expressed are attached to this Memorandum as Annexure A and B.

In accordance with the 1969 revenue-sharing formula only Botswana, Lesotho, Namibia and Swaziland's (BLNS states) shares are calculated. South Africa retains the balance of the pool of customs and excise duties. The 1969 formula provided for enhancement factors in favour of the BLNS states. The formula provided for a minimum revenue rate of 17% on (mainly) their imports from all sources, including from South Africa. This became unrealistic and unsustainable because the weighted average of the customs duty on imported goods and the effect of free trade agreements decreased over time.

Through the years South Africa's customs union partners' share, expressed as a percentage of the pool showed an erratic but steady increase, from 25% in 1990/I 99 1 (when Namibia became a Member of SACU) to 50% in 2000/2001, the last year for which reliable and final data are available. In some years the BLNS states' customs related share was larger than the total of customs duties collected.

In terms of the new revenue-sharing formula all Member States' shares will be calculated. The new formula still contains implicit enhancement factors in favour of the BLNS states, but the size of the revenue pool will have an influence on the shares of all Members States; whereas the pool had in practice; in terms of the 1969. formula, no influence on the BLNS share. At the time that the new formula was negotiated National Treasury, based on projections of the different factors used in the formula, estimated that over time South Africa's share of the pool would stabilise at about 50% of the Common Revenue Pool.

It is, therefore, expected that the new Agreement will not have a significant influence on South Africa's financial position.

The SACU Secretariat, the SACU Tariff Board and the ad/ hoc Tribunal will be financed' as a first charge against the revenue pool. Each Member State will contribute to the financing of these institutions in the same proportion as their shares in the pool. South Africa should according to projections therefore finance about 500/0 of these three institutions. Some functions of the institutions to be financed have been agreed on in principle. However, it is expected that the functions of the institutions will in all probability change over time. It is therefore not possible to make an exact calculation of the cost to South Africa of these institutions. However, taking into account the size of income from revenue from the revenue pool, the costs will be minimal and should not exceed 0,1% to 0,3% of South Africa's projected share of the customs and excise

pool.

A summary of the provisions is attached to this Memorandum as Annexure C.

Contains definitions of words and terms used in the agreement.

Spells out the objectives of the agreement, the most important of which are to facilitate trade; to create democratic institutions; to ensure fair competition; to increase investment opportunities; to enhance economic development; to enhance integration of the members into the global economy; to facilitate equitable revenue-sharing; and to facilitate the development of common policies.

Establishes the SACU and provides for headquarters in Windhoek.

Gives SACU legal status as an international organisation and provides for privileges and immunities of SACU staff.

Provides for membership of SACU by the current five states.

Makes provision for the accession of new members by unanimous decision of the Council of Ministers.

Provides for the establishment of SACU institutions, namely the Council of Ministers;

Customs Union Commission; Secretariat; SACU Tariff Board; Technical Liaison

Committees; and ad hoc Tribunal.

The Council of Ministers will be representative of all Member states. The Council will be responsible for the overall policy direction and functioning of all other SACU institutions and as such will be the supreme decision-making institution of SACU. The decision-making powers will include the determination of the customs tariff, the appointment of members to the SACU Tariff Board, and the appointment of an Executive Secretary of the Secretariat. The Council will meet at least once a quarter.

The Commission will consist of top-ranking officials representing all Member States. The Commission can discuss any matter relating to the SACU, make recommendations to the Council, supervise the work of the Secretariat and ensure the implementation of the agreement and Council decisions. It will oversee the management of the Common Revenue Pool in line with policy guidelines decided by Council. The latter function must be read together with Article 33 that deals with the management of the common revenue pool of customs and excise duties.

The Secretariat will be responsible for the day-to-day administration of the SACV. It will serve all the other SACU institutions and serve as a central contact point. It will also serve as depository of all records of SACU. The Secretariat will be headed by an Executive Secretary appointed by the Council of Ministers.

Provides for a SACU Tariff Board. It will be an independent institution and make recommendations to the Council on all customs tariff related matters. Board members will be experts and will be drawn from all Member States. They will be appointed by the Council. The Council will determine the Board's terms of reference, policy mandates, procedures and regulations.

Provides for four Technical Liaison Committees, namely the Agricultural-, Customs Technical-, Trade and Industry- and Transport Liaison Committees.

The Tribunal will be an ad hoc institution consisting of three persons drawn from a list of persons submitted by the Member States. On the one hand the Tribunal will be responsible to make recommendations on any matter referred to it by the Council. On the other hand it will be an adjudicating body when a dispute concerning the application or the interpretation of the agreement arises amongst two or more Members. In such cases the Tribunal's determinations will be final and binding.

Each Member State will have National Bodies or dedicated institutions that will

receive requests for tariff changes. These National Bodies Will have or build capacity to investigate tariff applications and to forward their findings to the SACU Tariff Board. These bodies will also have the right to do tariff investigations in general and may forward any recommendations in this regard to the Commission. All National Bodies will follow common procedures.

Allows Member States to consult on issues not involving all the Members. The outcome of such consultations will be reported to the Commission.

Determines quorums for meetings of SACU institutions. The quorum will be all Member States for all meetings. There may be exceptions to the rule.

In general, all SACU institutions will take decisions on a consensus basis.

Provides that locally produced goods must move freely. There are exceptions for specific reasons.

No customs duties will be payable when goods originally imported from outside the

Common Customs Area by one Member State are imported into the area of another

Member State.

Provision is made for a common external customs tariff. The Council may amend the tariff on the recommendation of the SACU Tariff Board. Provision for the rebate of duty by a Member State is made in certain cases, such as for relief purposes in cases of famine and national disasters, under a technical assistance agreement, in compliance with an obligation under a multilateral agreement and for any other purpose agreed on by the Member States.

Excise duties will be identical in the Common Customs Area. The determination of duties is democratised.

ARTICLE 22: Legislation Relating to Customs and Excise Duties

Member States will have similar laws relating to customs and excise duties.

Provision is made for customs cooperation regarding the harmonious implementation of the agreement and the harmonization and simplification of trade documentation and procedures.

Goods destined or originating from one Member State will transit the areas of other Member States freely, with a few exceptions.

ARTICLE 25: Import and Export Prohibitions and Restrictions

Each Member State will have the right to prohibit or restrict imports or exports according to its national legislation. Such measures will not be allowed if it is a Member State's aim to protect an industry from competition coming from an industry

in another Member State. Provision is made for cooperation regarding import and

export control.

Botswana, Lesotho, Namibia and Swaziland have the right to protect an infant industry from competing producers in the other Member States by means of a customs duty. Such a duty must also be applied to imports from outside the Common Customs Area. Protection is granted for eight years. The Council may determine additional conditions.

There will be no discrimination regarding transport rates by public authorities. Tariffs on the transportation of goods to and from a Member State will be the same as that of the state through which goods are transported in the case of public owned transport. Transport permits will he issued to other Members' operators on the same basis as those issued to local operators.

Product standards and technical regulations will be in line with the World Trade Organisation's Agreement on Technical Barriers to Trade. Harmonisation of standards and technical regulations are envisaged.

Allows the regulation for the marketing of agricultural products. The regulations will be non-discriminatory and will be agreed on. Basically the regulating of the market should not impede the free movement of goods. Exceptions will be made in the cases of emergent agriculture and agro-industries and other cases agreed on by the Members. Restrictive measures will have a sunset clause. Where possible, formalities will be simplified and harmonised. Standards are also to be harmonised.

Member States will have the right to apply sanitary and phyto-sanitary measures in terms of national laws in this regard.

This provision deals with preferential trade agreements. Existing bilateral preferential trade arrangements will be allowed to continue. No Member State will enter into a new preferential trade agreement with a third party without the concurrence of all the other Member States. Provision is made for the development of a common negotiating mechanism with third parties. Goods imported under a preferential trade agreement become liable to the payment of normal customs duties when the goods are removed to the area of another Member State.

Customs and excise duties are paid quarterly into the Common Revenue Pool.

The Council may appoint any one Member State or a SACU institution to manage the Common Revenue Pool The manager of the pool determines into which accounts duties must be paid and from which payments are made. All transactions are reported to the SACU Secretariat and will be subject to regular audits. South Africa will manage the pool for a transitional period of two years.

This article contains the principles on which income from customs and excise duties will be shared amongst the Member States. There are three components, namely a customs component, an excise component and a development component. Each Member State's share of the customs component will be calculated from the value of goods imported from all the other Member States in a specific year as a percentage of total intra-SACU imports in such year. Until the Member States agree otherwise, 15% of the excise component will be set aside to form the development component. Each Member State's share of the excise component will be calculated from the value of its Gross Domestic Product (GDP) in a specific year as a percentage of the total SACU GDP in such year. Each Member State will receive a share of the development component and the distribution of this component will be weighted in favour of the less developed Member States. Provision is made that the Secretariat, the SACU Tariff Board and the Tribunal will be financed from the common revenue pool.

ARTICLE 35: Revenue Forecasting

Member States must annually submit forecasts of customs and excise revenue.

Provision is made for the resolution of disputes on trade data used to calculate Members' shares of the customs component of the revenue-sharing formula.

ARTICLE 37: Timing of Payments

Payments to Member States will be made on the first day of each quarter.

Members States will develop common policies regarding industrial development.

Member States will cooperate on agricultural policies to ensure co-ordinated development in this sector.

Each Member State will have a competition policy. There will be cooperation to enforce competition laws at regional level.

The Council must develop policies and instruments to address unfair trade practices between Member States.

Provision is made for the development of Annexes that will form an integral part of the Agreement.

Proposed amendments to the Agreement will be considered by and decided on by the Council.

The Agreement must be signed by all Member States.

ARTICLE 45: Ratification

The Agreement must be ratified in terms of the Member States' constitutions.

The Agreement will enter into force 30 days after all Member States have ratified it and have deposited their instruments of ratification.

ARTICLE 47: Accession

Any other state may accede to the Agreement, subject to the provisions of Article 6.

Instruments of ratification or accession to be deposited with the Executive Secretary of the Secretariat.

A Member State may withdraw from the agreement after having followed procedures.

Provision is made for transition from the 1969 Agreement to this one. South Africa will remain responsible to pay the BLNS states money due to them in terms of the 1969 formula, as amended. The Council will determine how this will he done.

ARTICLE 51: Termination of the 1969 SACU Agreement

Subject to the transitional measures provided for, the 1969 Agreement will ~ terminated when this Agreement enters into force.

This Annex spells out the exact methodology on how customs and excise revenue will be shared.

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