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Southern African Customs Union(SACU): April 1998

“ Members commended the SACU countries for the fundamental economic reform that they were undertaking; they had moved away from import-substitution to more outward-oriented policies and were adjusting to the political transformation of South Africa as well as to the fast changing environment of globalization.”

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First press release

27 April 1998

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    The Trade Policy Review of the World Trade Organization (WTO) concluded its second review of the members of the Southern African Customs Union's (SACU) trade policies on 21, 22 and 23 April 1998. The text of the Chairperson's concluding remarks is attached as a summary of the salient points which emerged during the discussion.

    The review enables the TPRB to conduct a collective examination of the full range of trade policies and practices of each WTO member country at regular periodic intervals to monitor significant trends and developments which may have an impact on the global trading system.

    The review is based on two reports which are prepared respectively by the WTO Secretariat and the government under review and which cover all aspects of the country's trade policies, including: its domestic laws and regulations; the institutional framework; bilateral, regional and other preferential agreements; the wider economic needs and the external environment.

    A record of the discussions and the Chairperson's summing-up, together with these reports (two per country examined), will be published in due course as the complete trade policy review of SACU and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21. The Secretariat reports are also available to the press on the WTO website (in the newsroom).

    Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993), Botswana (1998), Brazil (1992 & 1996), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995), Côte d'Ivoire (1995), the Czech Republic (1996), Cyprus (1997), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India (1993 & 1998), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992, 1995 & 1998), Kenya (1993), Korea, Rep. of (1992 & 1996), Lesotho (1998), Macau (1994), Malaysia (1993 and 1997), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), Namibia (1998), New Zealand (1990 & 1996), Nigeria (1991), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), South Africa (1993 & 1998), Sri Lanka (1995), Swaziland (1998), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994), the United States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

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    Over the past three days the TPRB has conducted the first group review of the members of the Southern African Customs Union (SACU), Botswana, Lesotho, Namibia, South Africa and Swaziland; this has also been the second review of South Africa. These remarks, prepared on my own responsibility, are intended to summarize the main points of the discussion and not to be a full report. Details of the discussion will be reflected in the minutes of the meeting. The SACU members provided written replies in the context of the meeting and have undertaken to supply further details as necessary.

    The discussion developed under three themes: the macroeconomic and structural environment; trade policies and sectoral issues; and trade agreements.

Macroeconomic and structural environment

    Members commended the SACU countries for the fundamental economic reform that they were undertaking; they had moved away from import-substitution to more outward-oriented policies and were adjusting to the political transformation of South Africa as well as to the fast changing environment of globalization.

    Members welcomed South Africa's pursuit of structural adjustment and its reintegration into the world economy. Members emphasized that the reform and its continued pursuit, including substantial trade liberalization, would contribute to further diversifying South Africa's exports away from their dependence on mineral products, particularly gold, and would help to attract foreign direct investment. Noting in this context the role of the Growth, Employment and Redistribution (GEAR) framework, Members sought clarification on its coherence as a macroeconomic and structural strategy, comprising elements such as wage policy and incentives schemes geared at capital intensive sectors, with the objectives of job creation and an improvement in competitiveness. Some concern was expressed about the perceived slowdown in privatization; and there was a certain worry that, as the region's largest economy, South Africa might divert resources from neighbouring countries and make it difficult for them to compete. Some Members also asked about the effects of the east-Asian crisis on the SACU economies.

    Members commended Botswana on its recent economic performance; they asked about the coordination of its monetary and trade policies, with Botswana not a signatory to the Multilateral Monetary Agreement linking the other SACU members. It was emphasized that further liberalization under SACU would help diversify the Botswana economy away from its dependence on diamonds and meat, and create employment.

    Members recognized that Lesotho's status as a least developed country posed special challenges. They noted that Lesotho was heavily dependent on SACU revenues and asked about efforts to widen and improve the fiscal base; this question applied equally to Swaziland and, to a certain extent to Namibia. It was further noted that these revenues could decline as SACU further liberalized its trade regime. They added that Lesotho's market-oriented reforms, and trade liberalization under SACU, should help to diversify the economy away from its dependence on remittances from migrant workers.

    Participants congratulated Namibia on its efforts since independence in 1990 to restructure and diversify its economy, including its export base, away from mining and agricultural and fisheries production; combined with further trade liberalization under SACU, the reforms should help to create a free-market environment and contribute to meeting objectives such as job creation.

    Members asked about Swaziland's development plan. Noting that investment, mainly in the industrial sector, had stagnated since the political transformation in South Africa, some participants stressed that a free-market environment should contribute to attracting foreign capital to Swaziland.

    In reply, the representative of South Africa said that coherent macroeconomic policies had resulted in an unprecedented stability in South Africa's national accounts and in improved business confidence; this, and the ongoing restructuring of the productive base, constituted a strong platform from which future targets could be reached. On employment, he indicated that South Africa had a multifaceted strategy to promote labour-intensive sectors in manufacturing and to increase value-added in capital intensive sectors. He contested the suggestion of any slowdown in privatization; rather an overall strategy was being followed that would lead to improved efficiency and competitiveness. He added that in moving toward a free-trade area in the Southern African Development Community (SADC), South Africa would liberalize more rapidly than its partners, so as to allow them a longer adjustment period; in addition, South Africa was convinced of the need to promote investment in the smaller economies in order to help accelerate their development process.

    The Botswana representative noted that his country's currency was fully convertible and that international reserves were the equivalent of 30 months of imports. She added that the Government had established a task force for privatization, which was seen as an important element in liberalizing and diversifying the economy. Both the representatives of Botswana and Namibia indicated that the east-Asian financial crisis would affect their economies, particularly through the slowdown in the sale of gem diamonds.

    The representative of Lesotho stated that his country's Structural Adjustment Plan had been implemented since the late 1980s and was improving Lesotho's economic performance, thus helping to reduce reliance on remittances from migrant workers. The new Lesotho Highlands Water Project had also made a significant contribution.

    The representative of Namibia said that the planned introduction of a value added tax (VAT) in 1999 should help diversify the revenue base and lessen the impact of any changes in the SACU regime. Namibia believed that the ongoing commercialization of public enterprises would put them in a better position for successful privatization. He added that Namibia had embarked upon a process of industrial development and export diversification supported by a tax-based incentive scheme and an export processing zone regime.

    The representative of Swaziland noted that his authorities were also considering the introduction of a VAT, which together with improved tax administration, should improve the revenue base and reduce reliance on SACU customs duties. To promote investment, the Government had recently launched a one-stop shop for investors and an Investment Act had been finalized.

Trade policies and sectoral issues

Trade policies

    Members welcomed the recent changes in the trade policy of SACU members and the adoption of more outward-oriented trade practices. However, some Members considered that SACU's existing tariff structure might not be completely appropriate for the smaller economies. Moreover, some import prohibitions and controls were maintained. Overall, the trade regime still appeared to show a certain anti-export bias. Members welcomed the Tariff Rationalization Process, but a rather complex tariff regime remained, which lacked a certain transparency and stability. Some sectors were protected behind high and escalating tariffs. One Member expressed concern about the recent tariff increases on dairy products. Several Members inquired about proposed tariff increases on certain electronic and agricultural products. Members encouraged SACU countries to further simplify the tariff and reduce the rates.

    Questions were raised about rules of origin. Some Members questioned South Africa's VAT regime on imports, and raised concern about the implementation of the WTO Customs Valuation Agreement by SACU countries.

    Some Members sought information on efforts to restructure South Africa's trade remedy regime, expressing some worry about the application of anti-dumping measures. Questions were also asked about the use of local content requirements in industries such as motor vehicles and telecommunications. Some Members thought that certain technical standards were unnecessarily stringent and cumbersome. Questions were raised on government procurement, including as to whether South Africa intended to join the Government Procurement Agreement.

    On intellectual property, concerns were expressed about certain aspects of South Africa's TRIPS legislation, including its application to pharmaceuticals. South Africa was encouraged to modify its TRIPS legislation and thus provide a model on intellectual property protection to other SACU members. Information on the status of the various TRIPS-related bills was requested.

    Members welcomed South Africa's removal of the General Export Incentive Scheme, but drew attention to the wide variety of export incentive schemes that still remained.

    Speaking on behalf of its SACU partners, South Africa noted that the perceived anti-export bias in its trade policy instruments was not simply related to the tariff structure but to a complex set of factors. In this respect, it was essential to examine specific trade matters as part of the integrated approach South Africa had adopted on trade, industrial, investment and competition policy matters. Industrial and trade policies aimed at accelerating industrial restructuring and raising competitiveness. To achieve such restructuring, legitimate industrial instruments and export promotion measures were being used.

    The representative added that the tariff structure was not complex, except perhaps with respect to textiles. The ongoing tariff restructuring, which had incorporated a downward trend in rates, would continue reducing the number of tariff bands. Moreover, South Africa was committed to a structure of ad valorem tariffs and, excluding some agricultural products, this would be achieved by 1999. The still frequent tariff changes were mainly linked to the restructuring process. Strict guidelines were used to consider tariff increases; thus while policy had at times been selective, changes were made in transparent manner. Compound and formula tariffs applied to only a few items. South Africa would allow formula tariffs to lapse by January 1999. Tariff phase-down schedules had also been published for major sectors such as textiles, clothing, and motor vehicles.

    Remaining quantitative import restrictions were not a significant trade barrier with almost all such restrictions having been removed. Restrictions on black tea would be tariffied and local content requirements on this product removed within the next few months. Licensing was used on a non-restrictive basis. Import restrictions on used goods would remain in order to protect against disruptive prices. Most export controls were not applied restrictively and were to be removed. The representative of Namibia added that his Government was in the process of reviewing Namibia's import and export licensing regime, to assure full conformity with WTO rules.

    The representative of South Africa noted that while it would be a major challenge to streamline the rules of origin in existing and future trade agreements, and in the Lomé Convention, such rules were, by the nature of customs unions, not an issue for SACU itself.

    South Africa applied trade defense measures in accordance with WTO rules and legislation was being amended to reflect this. He added that given South Africa's short experience with such measures, further experience and capacity would be required to cope with the growing number and complexity of investigations.

    The South African representative noted that South Africa's approach to government procurement was based on the desire to employ it as an instrument to achieve socio-economic objectives without forfeiting good financial management. The representatives of the SACU members provided details on their standards and technical requirements.

    On intellectual property, the South African representative said that his country was the only developing country to have assumed full and immediate obligations under the TRIPS Agreement. To bring domestic legislation into line with international rules, several legislative amendments had been enacted over the last five years. The representative of Botswana gave details on the Copyright and Neighbouring Rights Bill that was expected to be tabled in Parliament in July 1998.

Sectoral issues

    Expressing full appreciation for the progress made by South Africa in liberalizing its agricultural sector, Members inquired about plans for the abolition of the remaining control boards; some participants expressed concern about the evolution of tariffs on agricultural products, including for wine and dairy items. Questions were raised about trade policy instruments in manufacturing, including in the motor vehicle sector. Questions were also asked about the gold tax formula, and about further liberalization and privatization in services, particularly in the telecommunications, transport and financial areas. Similar questions on services were addressed to the other SACU members and Lesotho was also asked about self-sufficiency in agriculture and outward processing in clothing.

    The representative of South Africa indicated that his Government had been engaged in an agricultural policy reform process that would result in a White Paper for agriculture by end 1998. In line with such reform, all agricultural marketing boards had been phased out in 1997 and export controls on agricultural products had either been removed or were not applied restrictively. Price controls had also been eliminated, except on sugar. Reform of the marketing of wine and sugar was under way.

    He added that the industrial subsector was being restructured, with an emphasis on the use of supply-side measures. In addition, reforms were also under consideration in telecommunications and in transport.

    The representative of Botswana noted the liberalization already achieved in telecommunications in her country, and the representative of Lesotho indicated that steps were being taken to promote tourism. He added that his Government had removed distortions caused by the agricultural self-sufficiency policy followed in the 1980s; policy was now geared to exploiting Lesotho's comparative advantage in the production of high value crops. In manufacturing, Lesotho was committed to maintaining the momentum achieved in the past decade, including in clothing, with an export-led growth strategy. The representative of Namibia added that Namibia was committed to liberalizing its service sector and that it would participate in the next WTO round of negotiations on trade in services. The representative of Swaziland noted that liberalization of telecommunications in his country was under consideration.

Trade agreements

    Members took note of the importance attached by SACU countries to their participation in the multilateral trading system and of their determination that their regional agreements would conform with the rules of the multilateral system. Certain SACU countries still faced some challenges in reviewing their domestic legislation to ensure conformity with multilateral rules. Some SACU members might also need to strengthen their institutional capacity to implement their individual WTO rights and obligations; the WTO could provide technical assistance for this.

    Several WTO Members highlighted the interlinkage among Southern African countries, which collaborated closely through an elaborate network of regional agreements including SACU, SADC, and COMESA. Details were requested on the status of the renegotiation of the SACU Agreement and the implementation of the SADC Trade Protocol. The matter of a possible free-trade agreement between South Africa and the European Union was raised, and some Members stressed the requirement that it apply to substantially all trade. Members inquired about the notification to the WTO of the regional arrangements.

    Members noted that for the countries under review, SACU was the focal point of their trade policy regime. It was recognized that the network of agreements in which these countries participated facilitated economic exchange. However, this network may have complicated trade relations and perhaps created certain conflicts between national and collective interests.

    The representative of South Africa, speaking on behalf of the other SACU members, stated that their countries were engaged in efforts to foster economic growth and balanced development through cooperation and integration. Regional integration would help build a competitive regional economy that would provide a basis for more effective integration into the world economy. Given the disparity of economies involved, this process would require strategies to boost supply capacity in the smaller SACU economies. Measures would also be needed to ensure that these countries did not suffer sudden reductions in SACU revenue. The representatives of Botswana and Namibia stressed that their Governments sought to make SACU more democratic.

    With regard to the SADC Trade Protocol, the South African representative indicated that SACU partners would make a comprehensive offer at the soon to be held SADC Ministerial meeting. The ratification of the SADC Trade Protocol was progressing and concerns about delays were premature. It would be notified to the WTO following the conclusion of the substantive agreement and its ratification.

    Negotiations were still in progress on a comprehensive trade, cooperation and development agreement between South Africa and the European Union. Both parties desired to conclude those negotiations by June 1998.

    Overall, Members welcomed the collective participation by Botswana, Lesotho, Namibia, South Africa and Swaziland in the review process. Members appreciated the recent measures taken by them towards economic reform and market opening. Members also emphasized the importance of the continued pursuit of these policies, both to increase market access and to improve the stability and transparency of the SACU trade regime. I wish to emphasize that the thrust of the discussion was supportive of the underlying direction of economic and trade policies in Southern Africa during a period of sharp transition in that region. Members offered strong encouragement to the five countries reviewed to consolidate and build on the achievements of recent years. Back to top