allAfrica.com: Southern Africa: Great Expectations From Expanded Customs Union (Page 1 of 2)

A top businessman and some economists in Namibia are optimistic that the proposed Southern African Development Community (SADC) Customs Union will break down trade barriers in the region and create competition that will benefit the ordinary consumer.

It is envisaged that SADC will become a customs union in 2010, which means that goods from any one of the 14 member countries of SADC will be allowed into all the other 13 member countries free of import duty. It also means that the SADC region will levy a uniform external tariff on goods from outside the region.

Not everyone is aware of or preparing for the impending broader customs union. Three cross-border traders who spoke to IPS in Katutura, on the outskirts of the Namibian capital Windhoek, did not know when the broader customs union was expected or how they stood to benefit from it.

Observers say this shows lack of education and involvement of key stakeholders in the negotiation of regional integration.

"The fact that they do not even know that a bigger customs union is being planned shows that their ideas have not been solicited," economist Professor John Odada said.

Currently, Namibia is a member SACU, which involves free movement of goods among five member countries (South Africa, Botswana, Lesotho, Swaziland and Namibia), and a uniform external tariff regime on goods from outside the SACU region.

This uniform external tariff regime has two functions. First, it protects industries operating within the SACU region against competition from outside SACU by raising prices of imports from outside the union so that goods produced within SACU have an immediate advantage over products from outside.

Secondly, it serves as a source of revenue for members of SACU. Revenue generated by the external tariff regime is channelled to a common revenue pool and shared among the five member countries by a sharing formula, which is revealed from time to time.

Odada said the sharing formula has tended to favour the smaller members of SACU, namely: Botswana, Namibia, Lesotho and Swaziland, which are commonly referred to in SACU as the BLNS countries.

"This is because these smaller members of SACU do not benefit much from the protective function of the external tariff regime because almost all the industries protected by the tariff regime are located in South Africa, which is the dominant member of SACU. The revenue sharing formula is, therefore, being used to appease the BLNS countries, so that they do not make noise about the skewed distribution of industries within SACU," Odada said.

"The establishment of a broader SADC Customs Union is bound to impact positively on the BLNS countries in two important ways. First, it will enable the BLNS countries to diversify sources of their imports. Currently these countries get good proportions of their imports from South Africa because of the current protective tariff wall created by the SACU external tariff regime," he added.

Harold Pupkewitz, the owner of Pupkewitz Holdings, Namibia's largest trading company, said "only gain" would come out of a broader customs union.

"We will have access to a bigger market. A bigger customs union will bring about stiffer competition among producers of goods and services, which in turn will lead to higher productivity and efficiency. The scales of production will be in favour of everyone in the region," Pupkewitz said.

While skirting speculation over the fate of the Southern African Customs Union (SACU), which is the oldest customs union on earth, established in 1910 to cover Botswana, Lesotho, Swaziland and South Africa, Pupkewitz was effusive in his praise for the union, saying it had proved its usefulness to its members.

"SACU led to the integrated and coordinated economic development of its members even though a certain polarisation whereby big businesses are concentrated in South Africa took place. Revenue shared among SACU countries has not just helped those countries fiscally, but has given them the chance to develop economically. It is up to the political leaders in those countries to use the revenue to develop their countries," he said.

Pupkewitz does not, however, anticipate South Africa's dominance in trade matters going away with the coming of a broader customs union but is convinced that there will be rich pickings for SADC countries.

"This is the reality of the situation and until there is a bigger union there is no use trying to **** against thunder. However, I think this polarisation will end once there is a bigger customs union, but SADC countries need to develop the skills of their people and do something about their production capacity to survive the impending competition," he said.

Odada said when a country decides to join a customs union; one of the sacrifices the country has to make is that of giving up discretion in fiscal matters. Since the SACU Agreement covers tariffs, excise duties and some sales taxes, these instruments cannot be used for pursuing the goals that each member country has set in its economic policy and strategy formulation. The unilateralism on the part of South Africa in this regard has in the past piqued some members, prompting two renegotiations of the SACU Agreement.

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