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Office of Trade Agreements Negotiations and Compliance

BOTSWANA, LESOTHO, NAMIBIA, SOUTH AFRICA, SWAZILAND

TRADE POLICY REVIEW SUMMARIES 1998

16 April 1998

SIMPLER, STABLE TARIFFS SHOULD HELP

SACU MEMBERS REALIZE GAINS FROM TRADE

Trade Policy Reviews of SACU member states

- Botswana, Lesotho, Namibia, South Africa and Swaziland -

A simplified, more stable tariff structure would increase the efficiency of SACU's trade, enhance its ability to fulfil its multilateral obligations, facilitate the negotiation of new or expanded regional agreements and help SACU members attract more foreign investment.

A new set of reports prepared by the WTO Secretariat on the trade practices and policies of the five SACU members - Botswana, Lesotho, Namibia, South Africa and Swaziland - notes that SACU's external tariff, until now determined by South Africa, is extremely complex and often fluctuates, sometimes hampering the export interests of individual SACU members. Separate reports on each of the members' trade policies and practices (see below for salient points) have been prepared by the WTO Secretariat. The reports along with policy statements prepared by each of the five governments will be reviewed by the WTO's Trade Policy Review Body on 21, 22 and 23 April 1998. It is the first time since the Trade Policy Review Mechanism entered into force in 1989 that the GATT or the WTO has carried out a grouped review of developing countries.

According to the Secretariat reports, the SACU agreement is the principal treaty governing the common trade policy of SACU member countries. Under the agreement, members apply to imports customs, excise, sales, anti-dumping, countervailing and safeguard duties, and other related laws set by South Africa, by far the largest trading partner in the customs union. The agreement provides for duty-free circulation of goods within the five-country customs union and grants transit rights across South African territory. Duties collected by SACU members are pooled in a common fund and subsequently distributed to members by South Africa. The reports note that the agreement is currently under re-negotiation and that SACU members are trying to revise the revenue-sharing formula and the management of the customs union.

SACU's common external tariff averaged some 15 per cent in June 1997. Some 44 per cent of tariff lines, particularly on inputs of capital goods and products that are not manufactured and do not have substitutes in South Africa, bear a zero rate whereas goods produced, or with substitutes produced, in South Africa generally bear relatively high rates. The reports add that the highest average tariff is in manufacturing with 15.6%, compared with 5.6% in agriculture and 1.4% in mining and quarrying. The structure of the common external tariff, determined by South Africa, primarily reflects its policy priorities and industrial structure. The reports note that the existing tariff structure sometimes imposes an anti-export bias on members' industries. SACU members, other than South Africa, are also concerned by the complexity of the SACU tariff regime comprising specific, ad valorem, mixed, compound and formula duties, and its frequent changes. Both factors are cited as impediments to implementing and administering the tariff.

The reports note, however, that the Tariff Rationalization Process (TRP) being undertaken by South Africa should substantially simplify SACU's tariff structure. The TRP may, nevertheless, lead to increased tariff escalation and result in a higher effective rate of protection.

The five SACU countries are also members of the South African Development Community (SADC), an agreement which sets out a timetable for the creation of a free-trade area encompassing the free movement of capital, goods, services and labour. SADC, an agreement which is to have its own dispute settlement mechanism, is also a forum for political cooperation. SADC members, excluding South Africa, also benefit from preferential market access to the European Union under the Lomé Convention.

According to the WTO reports, the network of regional and preferential trade agreements within the southern African area and between southern Africa and Europe presents a number of challenges to policy makers in the region. While SACU must still determine its own structure, it has also to consider its operational relations with SADC. Relations between Botswana, Lesotho, Namibia and Swaziland (BLNS) with South Africa on the one hand, and South Africa's relations under its coming bilateral trade agreement with the European Union, on the other, are a third piece of the regional and preferential trade puzzle. There is a risk, the reports say, that the evolution of this complex set of relations could create a structure of tariffs, preferences and rules of origin that could well lead to future trade distortion.

Below are the summary highlights of the WTO Secretariat reports. Copies of the reports may be obtained from the WTO's website (under Trade Policy Review Body) or from the WTO's Information and Media Relations Division.

South Africa

The Government of South Africa embarked on new economic and trade reforms following the end of apartheid and the holding of multi-party elections in 1994. It is now rapidly re-integrating its economy into the multilateral trading system. While the WTO Secretariat report notes that South Africa's five-year trade liberalization programme will help its products compete internationally, the report states that policy makers should continue with plans to simplify and coordinate the various aspects of trade policy, especially the tariff structure.

The South African government hopes to increase investment and re-orientate resources away from the highly capital-intensive industrial structure which characterized the economy throughout much of the apartheid era. The report says that South Africa has made decisive moves towards outward orientation with a focus on export promotion by means of a wide variety of incentives, such as tariff concessions and credit facilities. The main objective of South Africa's economic policy is to enhance the value of labour-intensive products with a view to reducing the level of unemployment (29 per cent of the economically active population). Tariffs and "supply-side measures" are South Africa's main trade policy instruments. Quantitative restrictions have been dismantled to a large degree.

Mining and related activities remain at the centre of the South African economy and account for some 40% of earnings from merchandise exports. As the backbone of the economy, the mining and quarrying sector receives the largest share of financial assistance. The manufacturing sector, largely centred around mineral processing, contributes nearly 25% of GDP. However, the report says, the international competitiveness of manufacturing suffers from a lack of skilled labour. This sector is protected mainly by tariffs, which average nearly 16%. Textiles, clothing and related items are also among the most tariff-protected products. Services are the largest employer, with over half of total employment, and account for some 53% of GDP. In the agricultural sector, the government is promoting the deregulation of the marketing system, notably by reducing the number of control boards. Tariffs on agricultural products range from 0 to 35%, with a simple average of 5.6%. Ceiling bound rates ranging up to almost 400 per cent leave considerable margins for discretionary increases in applied tariffs.

In recent years, merchandise imports have grown faster than exports. South Africa's exports include machinery, motor vehicles and fertilizers to African countries, and minerals and agricultural products to developed markets, mainly Germany, Italy, Japan, the United Kingdom and the United States. South Africa's main suppliers of imports are Germany, Japan, the United Kingdom and the United States.

The report notes that even though South Africa privatized or commercialized a number of public enterprises in the early 1990s, the process has since slowed down. Several state-owned enterprises hold monopolies or exercise majority control in various areas, including electricity, water, transport and communication, mining and quarrying. In the agricultural sector, there are still 14 marketing boards in operation. In the services sector, though the situation has improved with the restructuring of several state-owned service suppliers and an opening to foreign investment, the report notes that further liberalization would help raise the competitiveness of South Africa's exports.

Botswana

Botswana's growth since independence in 1966 has been impressive, largely due to the performance of the mining sector. The WTO Secretariat report on Botswana's trade policies states that Botswana's strong economy and export structure make it the least dependent of the BLNS states on revenue distributions from South Africa. Liberalization of services, such as telecommunications, finance, insurance and transport, will help Botswana develop its considerable trading potential. Meanwhile, the development of new transport routes via Namibia will encourage diversification of trade. The report notes that given Botswana's potential, the country has an active interest not only in reforming the internal structure of SACU but also in establishing a tariff which reduces the current anti-export bias and encourages further opening towards the broader south African region and to the rest of the world.

Botswana's export trade consists mainly of diamonds (around 70 per cent of merchandise exports) of which over 70% go to the United Kingdom and Switzerland. The UK is also the largest market for Botswana's beef exports, which gain duty-free preferential access under quota to the EU. On the import side, South Africa is by far the largest supplier. Imports from South Africa, however, include goods from other sources coming through South Africa to land-locked Botswana.

The report notes that manufacturing activity has expanded strongly, principally in the textiles and motor vehicles assembly sector. In regard to services, the telecommunications sector has grown rapidly. Banking services are open to new competition and tourism is a potential major source of foreign exchange.

Lesotho

A least-developed country surrounded by South Africa and heavily dependent on it, Lesotho is the poorest member of SACU. Subsistence agriculture is the main occupation for the majority of rural households. The WTO report notes that the bulk of rural household incomes in Lesotho comes from wage remittances from migrant labour in South Africa. Remittances of migrant workers account for over 30% of GNP - almost 45% of GDP - and represented more than twice the export earnings recorded in 1996. Outward processing in clothing and footwear account for around one-third of earnings from merchandise exports. Receipts from the SACU customs revenue pool account for over 50% of budgetary income and more than 70% of recurrent expenditure, the highest among SACU members.

Lesotho also has preferential access under the Lomé Convention to the European Union. The clothing industry was, until recently, the main beneficiary of Lomé preferences, but its export possibilities have become limited because of rules of origin requirements. Lesotho also has duty-free access to the United States under the latter's Generalized System of Preference (GSP) scheme. Most clothing and textile exports to the US are free from quota limitations.

The WTO report notes that Lesotho's high level of dependence on South Africa for trade and for labour remittances implies that a stable, outward-oriented structure of the SACU tariff is of considerable importance to it. The development of Lesotho's economy is likely to depend both on liberal conditions for trade and investment in southern Africa and in ease of access to other markets for its potential exports.

Namibia

Namibia has a highly dualistic economy, with a sharp division between its formal and informal sectors. The WTO report on Namibia states that its formal GDP depends mainly on mining - diamonds and uranium - and agriculture. The Namibian economy is very trade-dependent and the customs revenue from the SACU pool accounts for about one third of its tax revenue. Earnings from mineral exports account for nearly 60 per cent of total merchandise exports, with diamonds contributing some 40 per cent. According to the report, increased revenues from diamond and other mineral exports should enable Namibia to gain greater economic independence within the SACU area. At the same time, Namibia's trade is becoming increasingly diverse in products and geographical distribution as its economic development progresses.

A member of SADC, where it is responsible for the coordination of regional fisheries activities, Namibia is also a member of the Common Market for Eastern and Southern Africa (COMESA). The report notes, however, that the only significant trade flows with COMESA members are with Zimbabwe, with which Namibia maintains a preferential trade agreement. Under the Lomé Convention, Namibia gains preferential access, subject to quota restrictions, to the EU market for beef. Namibia also gains GSP access to most developed markets.

Namibia has taken steps to commercialize former state enterprises carrying out "non-core" government functions and to clarify the financial relationships between government and parastatal companies to make the latter more publicly accountable. To date, postal and telecommunications services, tourist resorts and water supply services have been or are being transferred to state-owned companies from various government departments. A full privatization programme, however, is not yet underway.

Namibia's participation in SACU and SADC, implies that it has strong interest in an outward-looking set of trade policies. The continued development of revenues from diamond and other mineral exports should enable Namibia to gain greater economic independence within the SACU area and to strengthen its capacity to pursue autonomous, but coordinated, interests.

Swaziland

Swaziland's economy is undergoing a period of slower economic growth as

companies move back to South Africa. During the 1980s when many businesses relocated to Swaziland to avoid economic sanctions against South Africa, Swaziland's economy grew at an average rate of 7 per cent a year, compared to current and projected growth rates of 3 percent. Capital investment flows have also slowed significantly.

The WTO report on Swaziland's trade policies and practices notes that South Africa and the European Union are the country's main trading partners. South Africa was the origin or transit point for 95 percent of Swaziland's imports and 58 per cent of its exports. The EU accounts for between 14 and 20 percent of exports, principally sugar which has preferential access to the EU under the Lomé Sugar Protocol.

According to the WTO's report, Swaziland has traditionally exported agricultural and forestry products. Food products, drinks processing and other manufacturing activities are increasing and currently account for over 35% of GDP. While capital investment in Swaziland slowed during the 1990s, significant expansion has occurred in existing industries such as refrigerator manufacturing, wood pulp production and sugar refining.

Swaziland's high level of economic dependence on South Africa implies that a stable, outward orientated structure for the SACU tariff is of considerable importance. The report states that the recovery of the economy is likely to depend on liberal conditions for trade in southern Africa and on the ease of access to other markets. Swaziland, therefore, has an active interest in the establishment of an external trade regime that obviates any anti-export bias and encourages integration into the broader southern African region and the world market.

Notes to Editors

The WTO's Secretariat's reports, together with policy statements prepared by SACU member states will be discussed by the WTO Trade Policy Review Body (TPRB) on 21, 22 and 23 April 1998. The WTO's TPRB conducts a collective evaluation of the full range of trade policies and practices of each WTO member at regular periodic intervals and monitors significant trends and developments which may have an impact on the global trading system. The reports, together with a report of the TPRB's discussion and of the Chairman's summing up, will be published in due course and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

The reports cover the development of all aspects of each of SACU state's trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector. Since the WTO came into force, the "new areas" of services trade and trade-related aspects of intellectual property rights are also covered. Full reports are available for journalists from the WTO Secretariat on request. The full text of the WTO Secretariat report is also available for the press in the newsroom of the WTO website.

Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993), Brazil (1992 & 1996), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995), Côte d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), 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), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992, 1995 & 1998), Kenya (1993), Korea, Rep. of (1992 & 1996), Macau (1994), Malaysia (1993 & 1997), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), 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), Sri Lanka (1995), 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).


TANC offers these agreements electronically as a public service for general reference. Every effort has been made to ensure that the text presented is complete and accurate. However, copies needed for legal purposes should be obtained from official archives maintained by the appropriate agency.