Developments in and the Future of the. Southern Africa Customs Union (SACU) Statement by HON. CALLE SCHLETTWEIN. Deputy Minister of Finance

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1 REPUBLIC OF NAMIBIA Developments in and the Future of the Southern Africa Customs Union (SACU) Statement by HON. CALLE SCHLETTWEIN Deputy Minister of Finance At the occasion of the Quarterly General Meeting of the Namibia Logistics Association (NLA) 10 June 2010 Hotel Thule 1

2 Mr. Francois Uys, Secretary General of the Namibia Logistics Association, Members of Namibia Logistics Association, Members of the Media, Invited guests, Ladies and gentlemen. Thank you for your invitation to speak to you about the Developments in and the future of the Southern African Customs Union. You requested me that I share with you the latest developments in SACU, and the impact that likely changes to SACU policies may have on customs and border control and on the cross-border movement of goods and persons. The invitation letter further referred to incidences of delays that are currently being experienced by your member businesses at non-sacu border posts, as well as concern and uncertainty about the financial implications that may emanate from the new developments pertaining to the future of SACU. I take pleasure in sharing information with you and will especially elaborate on certain policies that are pertinent to the proper function of cross-border trade practices. And, please feel free to pose further questions after my statement. I may not be able to clarify all technical issues immediately, but you are welcome to contact any of our technical staff present here today. BACKGROUND OF SACU SACU is the oldest Customs Union in the world. The establishment of SACU dates back to June 29, 1910 when the first Customs Union Agreement between the then Union of South Africa and territories of Basutoland, 2

3 Swaziland and Bechuanaland Protectorate entered into force. It was merely a revenue collection instrument for the Union of South Africa. The conclusion of the 1969 Agreement between the Republic of South Africa, Republic of Botswana, Kingdom of Lesotho and the Kingdom of Swaziland marked a significant milestone in the history of the common customs area, being the first time Member States entered into an international agreement as sovereigns. Following its independence in 1990, the Republic of Namibia acceded to the 1969 SACU Agreement. With South Africa s attainment of democracy in 1994, the Member States of SACU decided to re-negotiate the 1969 Agreement, a process that culminated in the 2002 SACU Agreement which became effective on 15 July The current Member States of SACU are the Republic of Botswana, the Kingdom of Lesotho, the Republic of Namibia, the Republic of South Africa and the Kingdom of Swaziland. The 2002 SACU Agreement marks a turning point in regional integration dynamics in the region which provides for numerous important institutional and policy changes to the 1969 SACU arrangement. The 2002 SACU Agreement aims at transforming the Customs Union into an international organisation with transparent and democratic institutions which will ensure equitable trade benefits to Member States, based on joint decision-making procedures; and importantly, the agreement provides for a dispute settlement mechanism and calls for the development of common regional integration policies. OBJECTIVES The objectives of this Agreement inter alia are, to: Facilitate cross-border movement of goods within the territories of the Member States; 3

4 Promote conditions of fair competition in the Common Customs Area (CCA); Substantially increase investment opportunities in the CCA; Enhance the economic development, diversification, industrialisation and competitiveness of Member States; Promote the integration of Member States into the global economy through enhanced trade and investment; Facilitate the equitable sharing of revenue arising from customs, excise and additional duties levied by the Member States; and Facilitate the development to common policies and strategies. KEY ACHIEVEMENTS Although SACU celebrates its centenary in 2010, the entry into force of the 2002 Agreement can be considered as a highlight for SACU. Under this agreement several institutions in order to facilitate and support the implementation of the Agreement were established. These institutions include the Council of Ministers, the Commission, the Technical Liaison Committees, SACU bodies, such as a tariff board, and a SACU Secretariat which provides the necessary analytical and technical capacity to assist Member States in implementing the 2002 SACU Agreement and in dealing with contemporary challenges. The SACU Secretariat is hosted by Namibia a major break-through for Namibia in facilitating the building of regional organisations. On the domestic front, the establishment of institutions or bodies was expedited to befit the SACU sister organisations. These are notably the Namibia Competition Commission and the Namibia Standards Institute as independent bodies. The Namibia Tariff Board is in the making. 4

5 New Markets and Increased Revenue Since 2004, SACU has concluded several trade agreements with third parties by negotiating as a bloc. You may recall, for example, the coming into force of the Free Trade Agreement (FTA) with the European Free Trade Association (EFTA). This FTA, for example, allows for duty free Namibian beef and mutton imports into Norway, albeit under a specific quota. Technical assistance to Member States to take full advantage of this FTA is also being offered by the EFTA-group. In 2009, a Preferential Trade Agreement (PTA) with MERCOSUR was signed and is the process of being ratified. A Trade, Investment and Development Cooperation Agreement (TIDCA) with the United States of America was negotiated and foresees preferential trade and investment treatment for various product groups into the US market. In terms of trade, notable successes include intra-sacu trade that increased from R60.4 billion in 2004 to R71.6 billion in 2007, representing an increase of 18.5 percent. Total imports from the rest of the World for SACU have increased from R363.1 billion in 2004 to R636.4 billion in 2007, representing an increase of 75.2 percent. Total exports to the rest of the World for SACU have increased from R345.1 billion in 2004 to R568.2 billion in 2007, representing an increase of 64.7 percent. The size of the common revenue pool rose from R33.87 billion in 2005/06 to R44.10 billion in 2008/09 representing a 30.0 percent increase. Although the balance of trade of SACU with the rest of the world has increased over time, it plays a minor role in overall world trade. It is therefore eminent that SACU must build on niche markets which have the ability to render high returns based on low quantity but high quality goods and services. At this juncture I wish to pause and reflect deeper on revenue sharing within the SACU family: 5

6 An unfortunate perception is being created insinuating that South Africa is donating funds to the BLNS. The reality is that all member states contribute to the SACU Pool, which is then shared among the members according to an agreed formula, that is according to the 2002 SACU Agreement, which is a binding treaty for all member states. It is also important to underscore the principles that underpin the revenue sharing formula, with the main principle being that no SACU member should be worse off and that development in one should not be harmful to development in another. Considering the disproportionate levels of economic and industrial development within SACU in which South Africa plays the predominant role, and in which South Africa had used the tariff policy for many years to further its own interests; BLNS also had and still has a right to be asymmetrical revenue sharing for the fact that the tariff policy has created polarisation in economic development within the region. Hence, the revenue sharing formula consists of three components: customs, excise and development component. Customs concerns revenue from third country imports; excise concerns source based revenue, with fuel, alcohol and tobacco being the largest contributors. The development component is calculated as a share of excise and GDP. Subsidies in the form of rebates and duty drawbacks to industrial development programmes are paid prior to revenue sharing. A study showed that thus far, the majority benefit was accorded to South African industries and amount to just below 40 percent which is taken off the common revenue pool per annum. The effect of a Customs Union and ultimately the economic community, in which trade in goods and services is fully liberalised, confers benefits to member countries through increased trade and investment and unrestricted market access. For Namibia over the years SACU (and South Africa in particular) has been the main market for our exports and import sourcing, albeit diversification in very crucial for competitiveness. There has been an improvement in regional customs cooperation supported by common legal 6

7 and administrative practices. In addition, trade documentation has been simplified through the introduction of the Single Administrative Document (SAD) and processes are being put in place to improve the quality of trade data for analytical purposes. Notwithstanding this progress made, trade documentation and the associated capturing of trade data remains a challenge for Namibian authorities and businesses. This is equally valid for trade within SACU and SACU s trade with the rest of the world. Further, within SACU invoicing is still not harmonised, which is being aggravated by the fact that customs authorities use different data capturing systems. Without an harmonised invoicing system, on the one hand, new comers to trade may find it difficult to cope with the numerous non-trade barriers their goods and services face in the common customs area. On the other hand, non-harmonised systems and structures within the common customs area are prone to abuse and fraud, an aspect for which the SACU family continues to seek a lasting solution. ADDRESSING THE CHALLENGES SACU IS FACING Based on the consensus found during the recent SACU Heads of State and Government meeting, SACU member states have agreed to address issues which have hampered progress in fully implementing the 2002 SACU Agreement. Firstly, Heads of State and Government adopted a SACU Vision and Mission Statement. Secondly, strategic direction has been provided to certain areas of SACU operations, which inter alia, include, To recognise the role that SACU can play as a building block for deeper regional integration in Southern Africa. SACU member states regional and global integration ambitions should be steered in an asymmetrical approach, taking cognisance of various levels of economic development and capability of SACU to deepen regional and global integration. 7

8 the development and implementation of common regional approaches and to agree on the principle of unified engagement by SACU Member States in trade negotiations with third parties taking into account the different levels of development of each Member State. Here I pertinently wish to cite SACU s engagement with third parties which have caused SACU to be divided in past. Namibia will certainly continue to support trade negotiations of SACU with third parties in an open, but frank manner. For too long our country has felt the burden of prejudice, unfair trade practice and uncompetitive behaviour which has led to serious socioeconomic inequality. It is of importance to Namibia to highlight that developing countries face a predicament derived from an oversimplified classification system based on per capita income. Notwithstanding the real distribution of wealth or the comparative size of the economy, in terms of WTO rules, a Middle Income Country has to give reciprocal market access to developed countries. In this case, Namibia is required to give such market access to the EU. It is however known to all of us that Namibia can only be prepared to open its market in a staggered manner and under terms and conditions that are reflective of the Namibia s need to economically adjust to comparable higher levels. To date, we can not offer blanket subsidies to our private sector and at the same time be prepared to sacrifice policy space in which our economy may grow, become diversified and industrialised. To endeavour that national legislation governing economic policies, and which reflect the levels of national ambition and development priorities, be conducive to overall deeper intra-sacu economic integration as well as regional and global economic integration. Notably, a common industrial development policy is especially necessary in order to, e.g., 8

9 contain future contagion that sprouts from regional and global economic risks. We need to build on complementary and competitive advantages in the Union which would facilitate market access into developed countries. To build and strengthen common SACU institutions and human capacity that serve the interests of all member states. That each SACU member state finds alternate sources of revenue through the adoption of innovative and improved revenue collection measures, the broadening and diversification of the tax base. For Namibia, this would be accomplished by, for example, the introduction of an environmental tax, export taxes on certain commodities, and revisiting legislation that currently free the extraction and exportation of non-renewable natural resources from taxes. We are currently finalising a major review of the manufacturing and export incentives. Any future incentives will necessarily be target to serve a single purpose and not have a revenue diminishing effect. While SACU receipts have increased steadily over the last few years, and remain the largest single contributor to revenue, significant reductions will be incurred in 2010/11 and 2011/12 as a result of the economic downturn, and the medium term risks due to uncertainty around economic performance are significant. Tariff erosion through trade liberalisation is a long term risk. These risks can not be under estimated and need the immediate action of our government. FUTURE STRATEGIES TO IMPROVE CUSTOMS OPERATIONS 9

10 Apart from the recent commitments the Heads of State and Government made at the SACU Summit in Windhoek, SACU s role as an appropriate vehicle for the promotion of deeper regional integration, facilitation of extensive and diversified trade arrangement as well as economic growth and development was emphasised. Namibia is committed to support the process of deeper regional integration in order to consolidate SACU. This holds promise for the overall customs operations in the common customs area in the broader sense, as well as for Namibian businesses in the narrow sense and would include, Harmonisation of the customs legislation; Harmonisation/strengthening of industrial and trade policies and strategies; Promotion of economic growth and development; Creation of common institutions. In afore regard, various measures are undertaken to improve customs operations to facilitate trade with our neighbours and trade with other trading blocs. In general, cross-border movement of goods and services; and minimising delays at border posts are in need of improvement. Particularly, I wish to highlight the efforts Ministry of Finance undertakes and which relate to the reviewing of legislative frameworks and policies, modernising procedures, and regular stakeholder consultations. Some of the key challenges that are under scrutiny are the invoicing of goods (mostly to curb under-valuation), wrong classification of commodities, administration of rules of origin which should be consistent with SACU cumulation provisions, data integrity, and improved payment systems like electronic funds transfer. We are further eager to improve operations at borders by engaging other ministries, for example, Home Affairs, Agriculture, Environment and Tourism, to offer 24/7 services at all entry/exit points. This process is at an advantaged stage and will not only 10

11 improve the movement of persons, but also the movement of goods across borders. To sustainably improve cross-border movement of goods and persons there is urgent need to introduce modern examination equipment at border posts; regularise stakeholder meetings to a quarterly basis, and develop the inhouse capacity, as well as the capacity of the trading community though their associations to its Customs staff. The Ministry thus envisages that stakeholder engagements, including training of all affected parties, will streamline and harmonise its operations with other border agencies and key stakeholders. Moreover, the eventual introduction of X-Ray examination scanners and the implementation of Risk Management techniques based on the Asycuda++ Customs system will enhance Customs operations. The state-of-the art X-Ray examination scanners are equipped to detect contrabands and illicit goods and to adhere to international standards, thus, enhancing safety and security within the national and international supply chain. One of the key achievements of Asycuda++ has been the introduction of 100% direct trader input. This means that Customs officers are no longer required to key Customs declarations into the system, this is done directly by the trader. Traders are now able to prepare their Customs declarations from their offices, which reduce delays of their goods (trucks) at the border. Therefore, Customs officers concentrate their time on examining goods and providing quicker release of consignments. The issue of streamlining Customs procedures and processes such as the One-Stop Border Posts (OSBP), accreditation of importers and clearing agents, and concluding bilateral agreements with neighbouring countries will also assist the Administration to reduce clearance time and associated costs to the industry. 11

12 An OSBP allows people, vehicles and goods to exit one country and enter another country through a single facility staffed and operated jointly by the adjoining countries. The main advantage of OSBPs is to enable a quicker border clearance process and limit the duplication of border agency interventions. Consultations with relevant Government Agencies are ongoing and it is envisaged that a pilot OSBP be established at Trans Kalahari Mamuno and Oshikango Santa Clara border posts. CUTTING DELAYS AT NON-SACU BORDER POSTS The need for improved facilitation at non-sacu border posts is receiving increasing recognition. The government s efforts in general, and those of the Ministry of Finance in particular relating to operations at SACU entry and exit points, have also relevance to non-sacu border posts. However, as the demand for trade with those countries increase, additional resources will be deployed to affected entry/exit points, albeit not in a linear manner. Ladies and Gentlemen, With these few remarks I hope that I have been able to respond to your association s request to provide you with information on SACU developments, and customs and border controls over the movement of goods, services and persons. I thank you 12