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Country Commercial Guides FY 2000: Botswana Report prepared by U.S. Embassy Gaborone, Botswana, released July 1999 Note*

CHAPTER VI: TRADE REGULATIONS AND STANDARDS

Southern African Customs Union (SACU)

The Southern African Customs Union (SACU) is composed of South Africa, Botswana, Namibia, Lesotho, and Swaziland. The members have eliminated duties on goods moving between each other with certain strategic exceptions and have imposed a common external tariff on all goods entering the Union. With the exception of certain foodstuffs, import permits are not required for goods entering Botswana from SACU. Duties collected are placed in a common pot and split among member states. The current formula was derived during the apartheid era and ensures that Botswana, Namibia, Swaziland and Lesotho collect far more than is due them based on trade volumes. In essence, South Africa is subsidizing the other members, a situation acceptable for political reasons under apartheid but now unacceptable given its domestic financial problems. Projections show that if a new revenue sharing formula is not adopted South Africa may end up paying out more to the other members than is collected.

SACU renegotiations have been going on for several years. In the last 12 months, the talks have developed a new momentum, and there appears to be broad agreement that the revenue sharing formula has to change. South Africa has proposed a formula which guarantees the other members' revenues remain the same for a year and then slowly taper off. Lesotho and Swaziland, whose national budgets are largely dependent on SACU revenue, are deeply concerned about what this may mean for the future. Before agreeing to changes in the revenue sharing formula, all states except South Africa are demanding creation of an accountable SACU Secretariat. Currently, SACU is controlled by the South African Revenue Service (SARS), an arm of the South African government, which sets tariff rates and oversees disbursements. The other members are demanding that a secretariat with an elected president take over SARS' functions. Agreement on restructuring is probably several months away, but a formula whereby South Africa exchanges control over policy for more equitable revenue sharing seems the most likely.

Value Added Tax (VAT)

South Africa may have given new life to accusations of its non-collegial method of managing SACU when it unilaterally announced collection of its VAT at land borders with SACU partners. Previously goods destined for export to SACU were zero rated, as were goods in transit through South Africa. Goods imported from SACU members had their VAT paid by the South African importer following arrival. SARS announced the cessation of all zero rating as of January 1, 1999, with the exception of those goods consigned for transport on VAT registered carriers. The remaining SACU members claimed the action was taken without adequate consultation, planning, or consideration for the move's effects on their economies. South Africa claimed the move was necessary to eliminate pervasive VAT evasion fraud.

The effect has been that importers and exporters of goods to, from or through South Africa must pay 14% VAT upon the goods entry or departure from South Africa. The VAT can be refunded on export minus a one-and-a-half percent processing fee. Implementation at Botswana's borders has been especially problematic with delayed refund checks, improperly collected processing fees, and long border delays the norm especially at the main Botswana - South Africa border post. While refund issues have been addressed, border delays are likely to remain a serious and costly problem until SARS upgrades its facilities and trains additional personnel or until agreement on longer border operating hours can be reached between Botswana and South Africa.

Southern African Development Community (SADC)

Botswana along with 13 other southern African states (Angola, Democratic Republic of the Congo (DROC), Lesotho, Malawi, Mauritius, Mozambique, Namibia, the Seychelles, South Africa, Swaziland, Tanzania, Zambia, and Zimbabwe) is a member of the Southern African Development Community (SADC). SADC was established to promote closer economic, social and political integration in the region. At present, SADC sets policy through protocols which must be ratified by two-thirds of member states to bring them into effect. SADC has, thus far, ratified four protocols dealing with Immunities and Privileges; Transport, Communications and Metrology; Shared Watercourse Systems; and Energy. SADC's most ambitious protocol to date is its Trade Protocol signed in August 1996 by eleven member states (Angola was absent, DROC and Seychelles joined SADC later). The Trade Protocol calls for the reduction and elimination of tariff and non-tariff barriers between member states eight years from its ratification by two-thirds (eight) of the members. To date, five countries have ratified. Other members have delayed ratification pending the design of a Trade Protocol implementation plan by the Trade Negotiating Forum (TNF).

The TNF functions under the auspices of the Secretariat through monthly negotiating sessions at which member states have been asked to provide proposals for tariff reduction schedules and elimination of non-tariff barriers. The TNF has attempted to negotiate modifications to the rules of origin set in the Trade Protocol and to identify agreed upon sensitive product lists for each member state which will be subject to less rapid tariff reduction schedules. Following the July 1999 TNF meeting in Gaborone, there is a new optimism in SADC that an implementation agreement may be in sight. Outstanding issues have been reduced to tariffs, subsidies and quotas on sugar; sensitive product-specific rules of origin; final agreement on sensitive product lists; and non-tariff barriers. Most important for Botswana is a new SACU proposal to have two separate sets of tariff reduction schedules between SACU and other SADC members, a fast track for Botswana, Namibia, Lesotho and Swaziland and a slow track for South Africa. This would allow SADC members to reduce tariffs with Botswana more quickly than previously envisioned. At any rate, there is a definite possibility that Trade Protocol ratification will take place by year's end with implementation some time relatively soon after that.

World Trade Organization

Following its accession to GATT, Botswana became a member of the World Trade Organization (WTO), which was launched as the official successor to GATT in January 1995. The WTO is responsible for the implementation of the Uruguay Round Trade Agreement. With regard to tariffs and quotas, WTO seeks to: (a) create a market-oriented agricultural trading system - (Botswana and its SACU partners will have to decrease tariffs by 24% over 10 years) and (b) phase out quota restrictions on developing countries' textile exports (which will ultimately benefit Botswana).

Botswana recognizes that SACU's high tariffs are a barrier to manufacturing and investment in the country, although its overarching interest in maintaining duty-free access for its products to South Africa precludes it leaving the organization. Botswana is hopeful, however, that the stipulations of the WTO, coupled with the interest of some SACU members in seeing trade barriers reduced, should translate into a steady decline in tariff rates.

Sales Tax

A 10% sales tax is imposed on items such as fuel, liquor, cigarettes, motor vehicles, computers, domestic electrical appliances and most consumer goods. Importers of such goods are responsible for the collection of the sales tax. Most items of food, construction materials, capital goods, medicines, books and stationery are exempted. Certain services such as hotels, dry cleaning and hair dressing, also attract sales tax. In April 1997, sales tax coverage was extended to selected professional services. In the 1999 Budget Speech, the Government underscored its intention to replace the existing regime with a VAT by 2001.

Trade Regulations: - Import Licenses, Exchange Controls, Documentation

Import permits for goods entering Botswana directly from outside SACU are obtainable from the Department of Commerce and Consumer Affairs in the Ministry of Commerce and Industry. The import permits are not transferable. Permits are usually granted upon request, and Botswana's abolition of foreign exchange controls in February 1999 mean there is little difficulty in obtaining sufficient foreign currency to cover transactions. The local importer must prove the goods have been received in Botswana (the exchange control portion of the Customs Entry Certificate is sufficient evidence) and present evidence regarding the amount due (the supplier's invoice).

Prohibited imports include habit-forming drugs and objectionable literature (pornographic magazines and videotapes).

There is no tax on exports. Exports from Botswana generally do not require permits. Export controls are however assessed on the following restricted items, which require export permits: radioactive materials, unpolished diamonds, gold, wildlife and wildlife trophies, plants, hides and skins, and agricultural products. An Export Declaration Form (Form CD) must be filed for all goods exceeding approximately $370 in value.

Botswana has a "duty drawback" arrangement for the import of goods for processing or assembly followed by re-export.

Documentation required for external trade are: (a) Form CCA I for imports and exports within SACU; (b) Form CE 500 (Bill of Entry) for imports outside of SACU; (c) Form CE 24 (Bill of Entry) of exports of local products and (d) Form CE 23 (Bill of Entry) for exports of imported products.

Customs Officials may be reached at:

Department of Customs & Excise Private Bag 0041 Gaborone Tel: (267) 322-855 Fax: (267) 322-781 Contact: Mr. Ken Morris, Director