SACU Revenue Sharing Formula - the University of Mauritius

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ICITI 2012 ISSN: 1694122522 „The Development of the Bechuanaland Economy‟ November 1965, op cit. , page 8823 Botswana: Development Strategy in a Mineral led Economy- Basic report volume 1, May 1975, report No. 735-BT , table 5.1 statistical annex24 Hudson D. „Botswana‟s Membership of the Southern African Customs Union‟ in Harvey C. Papers on theEconomy of Botswana, Heinemann (London) 1981 p. 146. Hudson was at the time head of research at the Bank ofBotswana. It should also be noted that Hudson was writing at a time when there had been major miningdevelopments which caused a surge in imports thus increasing the return to the country. Hudson concluded:The gross benefit to Botswana of the 1.42 multiplier is probably around Pula 30 million ayear at present. It is a matter of debate whether the net benefit to Botswana of leaving the CustomsUnion could ever equal such a large sum. Even if we leave that aside , we note that Botswanawould have to charge about 16% on the value of imports and local dutiable production in order torecover just the tax element of the present revenue flow.25 The new stabilization factor created a new condition for revenue sharing:26 An Overview of the SACU from Botswana‟s perspective: Implications of the Historical record and ContemporarySituation for Renegotiation of the Arrangement‟ op cit p22 „ ...the government of South Africa created „independentstates‟ beginning in the late 1970‟s , it reportedly made agreements parallel to the SACU agreement and beganpaying shares to four of these entities from the SACU Revenue pool‟27 The three components can be written as follows:..............................................Customs Component...........................................Excise Component...................Development ComponentWhere R i = Revenue of Country i from the customs unionC i = Customs revenue derived by country iE i = Excise derived by country iD i = Development revenue of country iGDP i = GDP of country iE = Total Excise Pool ( minus development)C = Total external customs poolD = development pool28 The new revenue-sharing formula and the Common Revenue Pool is governed by Articles 32 to 37, and Annex Aof the 2002 SACU Agreement. Under Article 32, all customs, excise, and additional duties collected in the commoncustoms area are to be paid into the common revenue pool, within three months of the end of each quarter of afinancial year.29 Section 93 of the Australian Constitution states that: „During the first five years after the imposition of uniformduties of customs, and thereafter until the Parliament otherwise provides:(i) the duties of customs chargeable ongoods imported into a State and afterwards passing into another State for consumption, and the duties of excise paidon goods produced or manufactured in a State and afterwards passing into another State for consumption, shall betaken to have been collected not in the former but in the latter.30 SADC „Evaluation of an Appropriate Model for a Customs Union – Final Report‟, September 2007, pp. 57-5831In Viner (1950)‟s classic work on customs unions from 1950 he summarized the difficulties that confront thedistribution of revenue in a customs union with such disparate members. His words continue to resonate throughouta century of often acrimonious disagreement over revenue sharing in SACU:. . the greater the disparity in economic levels between the members, and the greater thedifferences as between the members in the customary consumption of imported commodities, thegreater is likely to be the difficulty in finding a formula for allocation of customs receipts whichwill be mutually acceptable.34
ICITI 2012 ISSN: 1694122532 This can be presented as:R i =Where R i = Total Import Duty Revenue of Country i in the customs uniont j = common external tariff on product jM ij = imports into country i of product j from outside the customs unionIn reality though the formula is generalizable, as in the case of SACU and some countries in UEMOAwhere transfer payment are made. Therefore the generalised equation should be:R i = + T iT i = Transfer to country i from other members of the customs union33 As long as any border tariff in any member of the customs union e.g. Botswana were less that the decrease incosts from bulk purchase the entrepot trade would continue irrespective of the trade regime in place betweenmembers of the customs union.34 SACU does have a complex rule of origin See Schedule 1, Part 1 SACU 2002.35 Thus in order to obtain the total benefit of customs union membership equation above must be modified toinclude the net external benefits to each member which producesNB i = R i +NB i = + T i +WhereWhere R i = government revenue for country i from the customs unionchange in cost of producing in country iThe stability condition for the customs union is:36 Leith found that SACU RSF had resulted in decreases GDP/capita in Botswana.37 SADC FTA – Article 3. By January 2008 85% of HS tariff lines were duty free. „Guide to the SADC protocol onTrade‟ SADC Secretariat -2008. 15% of tariff lines leave considerable room for member states to maintain sometariffs against imports from other contracting partners. Moreover, despite „commitments‟ made to implement by2008 many countries have not yet fulfilled their commitments under the trade protocol.38 The average SACU binding is approximately 8.6% though each member of SACU made separate MFN bindingduring the Uruguay Round. Lesotho‟s bindings are much higher than that of the rest of SACU.39 World Bank (2009) „World Development Report –Reshaping Economic Geography‟ Washington40 In the case of Botswana diamond exports and prices together explain 91% of GDP per capita over the last 30years. This also reflects relatively good governance in Botswana because, if the data existed, a similar regressionanalysis for DRC, Angola or Sierra Leone would be very unlikely to explain GDP per capita.41 “The South Africans have formally proposed a change in the revenue sharing formula, which is discussed as partof a blueprint to overhaul the customs union,” confirmed Kuukongelwa-Amadhila‟s permanent secretary CalleSchlettwein, who is in charge of the SACU working group tasked with this matter. It seems South Africa wants asystem that instructs the BLNS countries to submit development plans that will be financed through the pool, insteadof the union bankrolling national budgets. Source Tralac http://www.tralac.org/cgibin/giga.cgi?cmd=cause_dir_news_item&cause_id=1694&news_id=84137&cat_id=102642 See Centre for International Economics (for SACU Secretariat) „Study on the Review of the Revenue SharingArrangement for SACU‟, March 2011, Canberra43 It is the understanding of the authors that the SACU members have never approved any of the studies that theyhave commissioned.44 The data on polarization of trade and economic activity in SACU with the resulting structuralimbalances is unambiguous. The BLNS produce largely raw materials for export to SA and import a widerange of agricultural, manufactured and intermediate goods as the most recent intra-SACU trade data35
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