GLOBAL INSIGHT: Litmus test for intra-regional trade agreement

Lesotho’s new Agricultural Marketing (Wool and Mohair Licensing) Regulations seek to introduce licensing requirements that are approved and issued at the discretion of the Ministry of Small Business, Cooperatives and Marketing.

The new export requirements stipulate that the country’s wool and mohair must be prepared, brokered, traded and auctioned in Lesotho before it can be exported. In this way, Lesotho is seeking to ensure that all value-added activities are performed in-country and thereby capturing margins that would otherwise be accumulated in South Africa, where wool and mohair are traded on the international market.

This effectively halts intra-regional trade between Lesotho and South Africa, and changes the market landscape.

SOUTHERN AFRICAN CUSTOMS UNION REGULATIONS

The broader question, however, is whether this unilateral decision is consistent with the provisions of the Southern African Customs Union (SACU), of which Lesotho is a member. In SACU, there are exceptions to the extent to which the rules on tariffs, trade and free movement of goods are liberalised, as determined in the custom union agreement. These exceptions are either applied inconsistently or unprocedurally or both, with Lesotho’s wool and mohair regulations being a case in point.

Another example is Botswana’s imposition of a 40% duty on South African UHT milk, which is in contravention of that country’s bound rate of 20%.

Namibia’s restrictions on South Africa’s small-stock imports which have been in place for years is yet another example.

Namibia also requested a sugar rebate after citing challenges faced with regard to the competitive sourcing of sugar. The country raised concerns that the tariff generated by the dollar-based reference price (DBRP) was not fair, as it was a not a sugar-producing country. According to Namibian authorities, the DBRP is a unilateral policy that seeks to serve South Africa’s industrial agenda.

However, this mechanism ostensibly serves the interest of both sugar-producing and non-producing countries. Namibia is requesting a rebate facility similar to that of wheat. This request is consistent with similar requests Namibia has made since 2013 to increase the annual wheat rebate quota. In 2016, Namibia requested an additional increase of the wheat rebate from 80 000t to 120 000t. However, SACU reached a compromise of 20 000t, which now enables Namibia to import 100 000t duty-free.

SERIOUS RESERVATIONS

South Africa expressed fundamental reservations, citing unfair competition from re-exports of wheat. Local millers have complained that they source from global markets at high duties and are being forced to compete against Namibian re-exports of rebated wheat and pasta.

South Africa has also argued that there is no monitoring mechanism within the region to ensure that rebated wheat and its by-products are not traded in the SACU market. This renders the enforcement of the rebate condition ineffective.

When the agreement was signed, SACU promised to develop annexes that would allow for the monitoring of the provisions. But there is no appetite from the BLNS countries (Botswana, Lesotho, Namibia and Swaziland) to discuss these issues, as they are currently pursuing industrialisation. They want to reduce dependence on South Africa and are using rebates to achieve this.

The current conversation within SACU is how to approach such requests. The SACU commission also noted that the SACU agreement envisaged the establishing of a SACU tariff board, which would make recommendations to the council on changes in tariffs, rebates, refunds and duty drawbacks.

In the absence of such a board, some requests for rebates and quotas are submitted to the commission for consideration and approval, while others are processed through the International Trade Administration Commission of South Africa.

SACU has agreed to undertake national consultations and provide guiding principles for the development of draft guidelines, and to submit the working papers to the secretariat for consolidation. This draft paper is currently under discussion.