Trade and Industry Minister Rob Davies said last week SA would tighten its border controls with Botswana, Lesotho and Swaziland after they broke ranks with Sacu and signed an interim trade deal with the European Union (EU).
SA and Namibia balked at signing the interim economic partnership agreement (EPA), while pressure built on Sacu to sign the deal to align trade relations with the EU with multilateral trade rules.
SA's threat to tighten border controls and review customs revenue allocations could be a preamble to pulling the plug on Sacu.
Economist Matthew Stern, a director of Development Network Africa who previously worked at the Treasury, warned yesterday that the unshackling of Swaziland and Lesotho from SA would be a catastrophe for these countries. He was "astounded" that the parties seemed not to have considered the fallout. Lesotho earns about 60% of its state revenue through the Sacu revenue-sharing arrangement. For Swaziland it is as high as 70%.
If SA pulled the plug on Sacu, Lesotho could lose up to 25% of its gross domestic product overnight, and Swaziland 20%. State revenue in both countries would be halved and the effect on growth, employment and poverty would be "devastating".
Substituting income by raising taxes would require both countries to double their VAT rates and increase corporate tax threefold.
Relatively affluent Botswana would also be hit. Botswana earns almost a third of state income from customs revenue transfers. Its economy, which depends heavily on diamonds, was hit hard by the fall in commodity prices.
Another trade economist, who declined to be named, said Davies's remarks were a veiled threat to pressure Botswana, Lesotho and Swaziland on signing the pact.
The commentator was also concerned about the "serious implications" for Sacu members reliant on transfers from the customs revenue pool. SA's threat to break up the union is legally supported by the Sacu agreement of 2002. Sacu members are subject to 31 articles of the pact, which prohibits members from striking new trade deals without other members' consent.
SA's chief trade negotiator, Xavier Carim, said the issue would be "very pertinent and real" when ratified by parliaments party to it. The union's future had to be "thought through very carefully".
Trade commentators have criticised SA for an obstructive role in the EPA talks. While SA trades under a separate agreement (the Trade, Development and Co- operation Agreement) with the EU, BLNS countries (Botswana, Lesotho, Namibia and Swaziland) traded under the Cotonou Agreement, giving former colonies preferential market access to the EU.
The pact is incompatible with World Trade Organisation rules, and pressure has been immense to align trade relations with these rules since a waiver on Cotonou expired in December 2007.
But Namibia, which with SA opted not to sign the EPA, is in a precarious position as its trade with the EU in the absence of a replacement for Cotonou, would revert to the stricter Generalised System of Preferences . Namibia's primary export products (beef and grapes) would face stricter trade barriers when entering the EU, which would see it sacrifice market share in one of its most important export markets.
The global economic crisis has already wreaked havoc on Sacu. Stern said more economic shocks would be "unbearable".
"Come next year, the troubled Sacu members will desperately seek assistance."