ABSTRACT
Compensation to the treasury of Lesotho was in the form of a fixed share of the common revenue pool of the union, independently of Lesotho's actual share of the imports. This chapter discusses the protection policy of South Africa and its impact on tariff revenues to Lesotho. It analyzes the income distribution effects of the South African industrialization policy for consumers, producers and factor owners in the customs union area and describes the costs and benefits for Lesotho in the respects. The chapter reviews the criticisms of the 1910 agreement that eventually led to the 1969 renegotiation. The origins of economic integration go back to 1889 when the Cape Colony and the landlocked Orange Free State formed a customs union with free trade internally and a common external tariff. The development of the industrial sectors of the three small customs union partners, and particularly Basutoland, differs greatly from that of South Africa.
