India Wants Lower Tariffs in Southern Africa. Four Smaller Economies Face the Revenue Risk
India and the Southern African Customs Union signed terms of reference on August 12 for negotiations on a preferential trade agreement. Tariff concessions could reduce SACU’s shared customs revenue, although the final effect will depend on the products covered and any resulting change in import volumes. For Botswana, Eswatini, Lesotho,. . .
India and the Southern African Customs Union signed terms of reference on August 12 for negotiations on a preferential trade agreement. Tariff concessions could reduce SACU’s shared customs revenue, although the final effect will depend on the products covered and any resulting change in import volumes. For Botswana, Eswatini, Lesotho, and Namibia, the negotiations involve not only market access but also the distribution of fiscal risk. India and the five-member Southern African Customs Union signed terms of reference for a preferential trade agreement in New Delhi on August 12, reviving a process that stalled more than a decade ago. The two sides expect negotiations to begin within one month of the signing and aim to conclude them within a year. The proposed agreement initially covers eight areas: trade in goods and market access, customs procedures, sanitary and phytosanitary measures, trade remedies, technical barriers to trade, rules of origin, dispute settlement, and legal and horizontal provisions. The trade remedies chapter is expected to include a bilateral safeguard mechanism. Commerce Secretary Rajesh Agrawal described the document as the first terms of reference India has signed for a trade agreement with an African regional bloc. India’s Priorities and SACU’s Revenue ProblemIndia is expected to seek tariff concessions for automobiles and auto parts, pharmaceuticals, machinery, electrical equipment, chemicals, and textiles. Automobiles and auto parts were India’s second-largest export category to SACU after petroleum products, with shipments worth $1. 7 billion in the fiscal year ending in March 2026. Commerce Minister Piyush Goyal said India wanted a balanced agreement and emphasized that each side’s sensitive sectors would need to be respected. The less visible issue is how tariff concessions could affect SACU’s public finances. SACU is a customs union, not a free trade area with five independent external tariff systems. Botswana, Eswatini, Lesotho, Namibia, and South Africa apply a common external tariff. Customs, excise, and additional duties collected within the common customs area are paid into a Common Revenue Pool administered by South Africa. The money is then distributed among the members under SACU’s revenue-sharing formula. A lower tariff on an Indian vehicle would therefore not affect South African revenue alone. All else being equal, it would reduce the customs revenue entering the shared pool. The four smaller members could consequently bear part of the fiscal effect through lower distributions. The relationship is not automatic or one-for-one. Lower tariffs may increase import volumes, and some of the initial revenue loss could be offset by additional trade. Annual allocations are also based on forecasts and later adjusted to reflect actual collections, with those adjustments generally occurring after a two-year delay. Nevertheless, the exposure is real because SACU transfers represent an important source of government revenue for the four smaller economies. Statistics South Africa reported that, in fiscal year 2017–18, SACU transfers accounted for just over 40% of total government revenue in Eswatini and Lesotho and almost one-third in Botswana and Namibia. Those figures demonstrate the structural importance of the pool, but they are historical and should not be treated as current budget shares. More recent data also show how the pool is distributed and how sharply the payments can fluctuate. According to the South African Reserve Bank, SACU distributed approximately R78. 1 billion in fiscal year 2022–23. South Africa received about 44. 1% of the total, Botswana 23. 3%, Namibia 18. 2%, Eswatini 7. 4%, and Lesotho 6. 9%, with a small remaining allocation going to the SACU Secretariat. The same data show that combined distributions to Botswana, Eswatini, Lesotho, and Namibia fell from R63. 4 billion in fiscal year 2020–21 to R43. 7 billion in fiscal year 2022–23. Namibia provides a more recent example of that volatility. Its SACU allocation fell from approximately N$28 billion in fiscal year 2024–25 to N$21. 1 billion in fiscal year 2025–26—a decline of nearly N$7 billion, or roughly one-quarter, in a single year. This does not mean that an India-SACU agreement would produce a comparable decline. The size of any revenue effect will depend on the tariff lines included, the depth and timing of the concessions, the value of qualifying imports, and how trade responds after the agreement takes effect. The Product Lists Will Reveal the Real Trade-OffA preferential trade agreement is narrower than a free trade agreement. It generally applies tariff concessions to an agreed list of products rather than eliminating duties across most of the tariff schedule. SACU can therefore exclude sensitive products, phase in concessions, impose origin requirements, and use safeguards under agreed conditions. Those design choices will be especially important for the smaller members. South Africa is the region’s largest economy and its largest source of contributions to the Common Revenue Pool. Botswana, Eswatini, Lesotho, and Namibia receive a much larger share of the pool than they contribute. Their negotiating interest is therefore not identical to South Africa’s: they must weigh the potential benefits of cheaper imports and expanded trade against the risk of lower fiscal transfers. No final product list, tariff schedule, phase-in timetable, or revenue-impact assessment has been published, so the fiscal effect cannot yet be calculated. The exclusion list, when it appears, will say most of what needs to be said. If high-revenue or politically sensitive tariff lines are carved out or liberalized gradually, the smaller members will have been heard. If they are not, and no transition or adjustment mechanism is agreed upon, Botswana, Eswatini, Lesotho, and Namibia could bear part of the revenue cost. Talks are expected to begin within one month of the August 12 signing.