What SACU is and how it works

What was signed at Potchefstroom

The Union of South Africa came into being on 31 May 1910. Four weeks later, on 29 June, the Governor-General and the High Commissioner for the territories of Basutoland, Swaziland and the Bechuanaland Protectorate signed a customs agreement at Potchefstroom, published for general information as Government Notice 274 of 23 July 1910. It ran from 1 July 1910 to 30 June 1911 and thereafter for periods of twelve months, and any party could retire on three months' notice given before 30 June, or at once if another altered the tariff in conflict with the spirit of the text.

Three articles carried the substance. The customs union tariff then in existence was to be maintained until legislation of the Union or the Territories altered it. Products and manufactures passed between the Union and the Territories free of duty, spirits and beer excepted, with ceilings written in shillings and pence per proof gallon. And the duties levied on goods imported into and consumed in the Territories were paid into the Union treasury, out of which each Territory received a sum bearing the same proportion to total Union customs revenue as its own average customs revenue had borne over the three completed financial years before the South Africa Act took effect. That proportion was struck from a measurement taken before the agreement existed, and it was not reopened until 1969.

An older line runs behind the 1910 text. A customs union convention was concluded in 1889 between the Cape of Good Hope and the Orange Free State; British Bechuanaland and Basutoland joined it in 1891 and Natal in 1899; a wider union followed in 1903 taking in the Transvaal and Southern Rhodesia, with Swaziland acceding in 1904 and North-Western Rhodesia in 1905. The agreement of 1910 predates the General Agreement on Tariffs and Trade of 1947 and the World Trade Organization of 1995.

1969, and who set the tariff

Botswana became independent on 30 September 1966, Lesotho on 4 October 1966 and Swaziland on 6 September 1968, and the 1910 text was renegotiated. The agreement concluded on 11 December 1969 was between Botswana, Lesotho, South Africa and Swaziland, and it left the tariff where it had always been. South Africa retained responsibility for setting the common external tariff and the excise, anti-dumping, countervailing and safeguard duties; all customs and excise collected by the four members went into a consolidated revenue fund South Africa administered; and the sharing formula carried an explicit compensatory payment to the other three for the loss of fiscal autonomy. Any of them could still conclude a preferential trade agreement with a third party on its own account, provided the terms did not conflict with the union.

South West Africa, then administered by South Africa, was a de facto member throughout. Namibia acceded to the 1969 agreement after independence in 1990, and the present text records that accession in a single clause without dating it.

The pool, and the three components

The agreement now in force was signed by the governments of Botswana, Lesotho, Namibia, South Africa and Swaziland, and took effect on 15 July 2004. Article 3 places the headquarters at Windhoek, and Article 4 makes the union an international organisation with legal personality, able to enter into contracts, hold property, and sue and be sued. Decisions in every institution are taken by consensus under Article 17, the single exception being the ad hoc Tribunal, which under Article 13 decides by majority vote. The duties applied to goods imported into the common customs area from outside it are approved by the Council on a recommendation from the Tariff Board, which is where the unilateral tariff of 1910 and 1969 ended.

All customs, excise and additional duties collected anywhere in the area are paid into a common revenue pool within three months of the end of a quarter. The budgeted cost of the Secretariat, the Tariff Board and the Tribunal comes off the gross amount first. What remains is divided in three. The customs component goes to each member in the proportion its imports from the other members bear to total intra-union imports for the year. The excise component goes in the proportion of each member's gross domestic product to the union's. A development component, funded from a fixed percentage of the excise component and set initially at 15% of it, is distributed on a weighting the text describes as favouring the less developed members. Payments leave the pool on the first day of each quarter. Article 33 lets the Council appoint either a member state or a union institution to manage the pool, and named South Africa to do it for a transitional two years from entry into force.

An amendment adopted on 12 April 2013 wrote the Summit of heads of state or government into the agreement. It entered into force on 16 September 2016.

What joining costs, and what it forecloses

Any state not named in the preamble may become a member on being admitted by the existing members and acceding to the agreement, and Article 6 requires that the admission be approved by a unanimous decision of the Summit. Article 47 leaves the text open for accession on that condition and no other. Withdrawal is by notice to the other members; where consultation fails to settle a date and conditions, the agreement remains in force for twelve months from the notice and then ceases to apply to the member leaving.

The price of a shared tariff is a shared trade policy. Article 31, read with Annex F, establishes a common negotiating mechanism: external trade policy is determined jointly, and no member may negotiate or enter into a new preferential trade agreement with a third party, or amend an existing one, without the consent of the others. That is the reverse of the 1969 position. Agreements concluded jointly include one with the states of the European Free Trade Association, signed on 1 and 14 July 2006 and in force from 1 May 2008, and one with Mercosur, signed by the Mercosur states on 15 December 2008 and by the members here on 3 April 2009, in force from 1 April 2016. An economic partnership agreement with the European Union has been applied provisionally since 10 October 2016.

One asymmetry sits in the text itself. Article 26 allows Botswana, Lesotho, Namibia and Swaziland, and not South Africa, to levy additional duties for a time on goods entering their own areas so that an infant industry can meet competition from producers elsewhere in the union. An infant industry is defined there as one established for not more than eight years, and the protection runs for eight years unless the Council determines otherwise.

What the union is not

It is an arrangement about goods. Article 18 frees goods grown, produced or manufactured in the common customs area from customs duties and quantitative restrictions as they pass from one member to another, subject to national restrictions on grounds of health, the environment, treasures of artistic, historic or archaeological value, public morals, intellectual property, national security and exhaustible natural resources. Nothing in the text moves people or services.

It is not a monetary arrangement either, and the two rosters have differed since the 1970s. Botswana announced its withdrawal from the Rand Monetary Area on 6 September 1974 and issued the pula on 23 August 1976, allowing a hundred days for rand to be exchanged at guaranteed parity, and stayed inside the customs union throughout. The Central Bank of Lesotho describes the loti as pegged to the rand within the Common Monetary Area, which is a separate instrument with a separate roster.

Where the edges are argued

The founding date is read two ways by the union itself. Its history page dates formal establishment to July 1910, describes the arrangement as originally established by the British colonial administration in the 1880s, and puts the convention of 1889 in front of both; the anniversary printed on its own front page counts from 1910. Both readings are in print here and neither is settled.

The older argument is about the money, and each agreement is an answer to the one before it. The shares of 1910 rested on an average struck before the text began and went unrevised for 59 years. The agreement of 1969 replaced them with a formula and a compensatory payment, and left the tariff with one government. The agreement of 2002 replaced that in turn with three components, a development share and decision by consensus, which means that a change to the common tariff now needs every member to agree to it. There is no standing court to break a deadlock: the Tribunal is convened for the case in front of it.

The obligations that overlap are settled elsewhere. The African Continental Free Trade Area opened for signature on 21 March 2018 and entered into force on 30 May 2019, and the union's own factsheet on it says the approach taken follows Article 31, which is the same mechanism that carried the agreements with the European Free Trade Association states and with Mercosur.