Memorandum submitted by Dr Rob Davies,
Chairperson, Portfolio Committee on Trade and Industry, Parliament
of South Africa
This is a view from South Africa, not an official
government position, but one informed by discussions in South
Africa and the Southern African Development Community (SADC).
This note deals only with trade proposals, and
refers specifically to the European Commission's "Communication
to the Council and the European Parliament: Guidelines for the
negotiation of new co-operation agreements with the African, Caribbean
and Pacific (ACP) countries", Brussels, 29 October 1997 (hereafter
"Guidelines").
The "Guidelines" confirm a suspicion
that while the Green paper included several options, there was
one clear direction—a move from non-reciprocal preferences
towards reciprocal trade agreements.
South Africa was excluded from the Lomé
trade chapter in part because it was considered not to be a typical
ACP country. It is ironic that the type of agreement now being
negotiated with it (an FTA) has become the favoured model for
"typical" ACP countries.
This does, however, allow the South African,
Southern African Customs Union (SACU) and SADC experience to be
brought to bear on the broader debate on the future of EU-ACP
relations after Lomé IV. The outcome of this debate is
of major importance to us in South Africa. Our future is inextricably
linked to that of the SADC region, in which all our partners are
members of the Lomé Convention. Our hopes for an African
renaissance will likewise be affected by the kind of relationship
established between the EU and a continent on which the majority
of countries are Lomé members.
The Commission's Proposals
The "Guidelines" identify a number
of principles and declared objectives for a future EU-ACP agreement.
Many of these are unobjectionable, and indeed laudable, including:
— the principles of partnership, rather
than dependency;
— poverty alleviation as a cornerstone;
— the focus on gender equality;
— priority to employment creation;
— support for regional integration.
Concrete proposals need to be tested against
these principles, and it is here that there are many devils in
the detail.
As far as trade is concerned:
The "Guidelines" envisage as an ultimate
objective, the negotiation of comprehensive "economic partnership
agreements" with each of the three ACP regions—Africa,
the Caribbean and the Pacific.
This, however, will be a protracted process.
More immediately, the "Guidelines" propose, as a step
towards this ultimate objective, the negotiation of Free Trade
Agreements (FTAs) "in accordance with WTO rules . . . and
the common agricultural policy" with geographic sub-groups
in the ACP that are involved in regional integration efforts,
or in a limited number of cases with individual countries belonging
to no grouping.
The sub-regions identified in the "Guidelines"
are West, Central, East and Southern Africa, the Caribbean and
the Pacific. Among the organisations in these sub-regions that
are seen as potentially playing a role in the process are UEMOA,
UDEAC, SADC, EAC and the Caricom.
While not being excluded from potentially participating
in the negotiation of FTAs by sub-regional organisations they
may be a part of, least developed countries (LLDCs) are seen to
merit special treatment. The "Guidelines" propose that
LLDCs (ACP or otherwise) continue to benefit from the specific
non-reciprocal preferences for LLDCs agreed to by the Council
on 2 June 1997.
The "Guidelines" envisage negotiations
proceeding as follows:
— 1998-2000 Negotiation of a Framework
Agreement with ACP.
— 2000-2003 negotiation of FTAs with
sub-regional groupings.
During the three year negotiating period, non-LLDC
ACP countries would continue to receive terms of access to the
EU market as in the current acquis. If, however, for some
reason FTA negotiations with particular sub-regions did not succeed,
the countries concerned would be accorded standard generalised
system of preferences (GSP) status.
General Observation
The "Guidelines" proposal is based
on the assumption that Non-Reciprocal preferences have failed,
and that reciprocity will assist ACP countries to integrate effectively
into a globalising world economy. However:
While it is true that the ACP share of EU imports
has declined despite Lomé preferences, it is not obvious
that this is because of the non-reciprocal character of those
preferences. Other shortcomings appear largely to have been overlooked.
"Preliminary evidence suggests that the
poor export performance of ACP countries is related to both the
design and implementation of the trade preferences and supply-side
constraints within ACP countries. As regards the former, preferential
access to the EU is in practice not as generous as it appears
to be on paper. Indeed it is primarily traditional exports . .
. that enjoy significant preferential access. For temperate agricultural
commodities, which compete directly with EU producers, access
is much more restricted. Manufactured exports enjoy some preferential
access subject to quota limits. However, despite the reduction
of tariffs under the Uruguay Round and the tariffication of quotas,
non-tariff barriers to manufactures remain important, particularly
the threat of anti-dumping actions which amounts to `contingent
protection'" (Marina Mayer and Lolette Kritzinger-van Niekerk,
"Towards a South African Position on the Lomé Convention",
paper presented to Workshop on a South African Position on a Successor
to the Lomé Convention, Midrand, July 1997).
Moreover, as the ACP countries have pointed out,
the general picture obscures a number of cases where with initiative,
resources and capacity good use has been made of Lomé preferences
to create non-traditional export sectors in ACP countries. An
example from Southern Africa is the Zimbabwean cut flower industry.
Nor is obvious that liberalisation at a rate
faster than that required by the WTO (through reciprocal FTA obligations)
will assist ACP states to more effectively integrate themselves
in the world economy in a way that promotes growth, development,
democracy, etc.
The fact that the process of globalisation is
highly uneven is not taken into account. The United Nations Development
Programme, Human Development Report 1997, points out that:
— liberalisation is proceeding selectively;
— projected overall gains in global
income of $212-510 billion "obscure a more complex balance
sheet of winners and losers", losses will be concentrated
in less developed countries;
— significant tariff and non-tariff
barriers remain in industrialised country markets in sectors where
developing countries have comparative advantages, e.g., agriculture
and textiles.
— agricultural subsidies render the
playing field far from level. "In 1995 industrial countries
spent $182 billion on subsidies . . . In the real world . . .
survival in agricultural markets depends less on comparative advantage
than on comparative access to subsidies. Liberalising local food
markets in the face of such unequal competition is not a prescription
for improving efficiency, but a recipe for the destruction of
livelihoods on a massive scale" (UNDP, page 86).
In many cases, supply capacity constraints may
be the overwhelming problem, and in such a context as the European
Parliament's "Report on the Commission's Green Paper . .
. " (September 1997) observed " . . . ill conceived
reciprocal trade agreements could lead to the de-industrialisation
of ACP countries and seriously undermine their temperate agricultural
sectors" (page 49).
Specific Comments
1. Given that the "Guidelines" propose
that FTAs with ACP sub-regions should be shaped both by WTO rules
and the Common Agricultural Policy (CAP), the absence of
any specific commitment to significantly improve access to the
EU market, including in sectors where ACP countries are currently
most competitive, is a notable lacuna. The fact that South Africa
is still facing an uphill battle to ensure improved access to
the EU market for key agricultural products (and on a worst case
scenario could find 40 per cent of current agricultural exports
excluded from an FTA) shows that an FTA that is WTO and CAP compatible
can still severely limit access to the EU market.
2. Reciprocity is argued for in the "Guidelines"
in terms that imply it will be a voluntary mechanism for
those countries or sub-regions that want to go further than the
current acquis. In other words it is implied that it will
be a facility that will allow those that want to go further and
negotiate a stronger partnership (presumably with improved access
to the EU market) to do so in return for accepting reciprocal
obligations. In practice, however, the proposals introduce a powerful
element of compulsion. The "Guidelines" suggest that
those countries or sub-regions that do not conclude FTAs will
have their terms of access altered to standard GSP. This would
amount to a significant worsening of their terms of access since
Lomé offers better access terms than GSP. It has been calculated
that if the non-LLDC ACP countries were to be transferred to the
GSP they would be required to pay to the EU treasury an amount
in tariffs equivalent to over 40 per cent of the EDF aid disbursed
to the entire group in 1994 (Jane Kennan and Christopher Stevens,
"From Lomé to the GSP: Implications for the ACP of
Losing Lomé Trade Preferences", IDS, Sussex, November
1997). Coupled with the lack of any specific commitment to significantly
improve market access under FTAs, this could mean that some countries
or sub-regions find themselves compelled to run to stand still,
i.e., obliged to negotiate an FTA with significant adjustment
costs merely to retain something like the status quo in
terms of access to the EU market. Any such outcome would clearly
be unacceptable and out of line with the stated principles and
goals of a new partnership.
3. The implications of negotiating FTAs between
countries or regions with economies of very different sizes and
levels of development is not explicitly taken up in the "Guidelines".
In the South African negotiations, the necessity for a significant
degree of asymmetry in both the content and timing of the tariff
elimination process has been a major issue. The European Parliament's
report said that any FTA between the EU and ACP regions to be
mutually beneficial would have to be "highly asymmetrical
both in the content and the timing" (page 49). This point
is not addressed by the Commission in the "Guidelines".
There are no firm WTO rules or established precedents on what
the phrase "substantially all" has to mean in terms
of percentage coverage. The percentages that may be agreed with
a relatively industrialised country like South Africa may well
not be appropriate for other ACP countries or sub-regions. The
possibility that this issue will have to be taken up with the
WTO, and that acceptable reciprocal agreements with ACP sub-regions
may not be immediately WTO compatible, needs to be recognised.
4. The commitment to promoting regional integration
is welcome. But there is a need to recognise the possibility of
contradictions between regional integration processes and those
engendered by an FTA with the EU. In the South African negotiation,
the need to give priority and a degree of real preference (at
least for a time) to producers from other SADC countries over
competitors from the EU with respect to access to the South African
market, has been raised. Similar issues could well arise in other
regions.
5. The limited commitment to support some of
the adjustment costs of regional integration is welcome ("The
EU will be offering ACP partners engaged in a regional integration
a co-operation strategy involving . . . for a transitional period,
taking the effects of integration on budget revenue and the balance
of payments into account when assessing funding needs," "Guidelines",
Page 18, paragraph 9). Will the same also apply to the adjustment
costs that will inevitably arise from FTAs with the EU?
6. The sub-regional groupings identified as
possible negotiating partners for FTAs with the EU are at best
at an early stage of implementing an FTA among themselves, i.e.,
they are at various stages of a programme of removing tariff barriers
to intra-regional trade but none has yet reached the stage of
establishing a customs union with a Common External Tariff (CET).
The setting of external tariffs towards third parties remains
in most cases a competence of individual national states. This
raises the question as to whether any of the regional organisations
identified has either the mandate or the capacity to negotiate
agreements with third parties with tariff implications.
7. In cases where the sizes and levels of development
of countries in an ACP sub-region differs, will an FTA with the
EU be based on the trade strengths of the stronger or the trade
weaknesses of the weaker? This is a pertinent issue in terms of
any proposal to extend a bilateral FTA with South Africa to the
SADC region (see below). If the trade strengths of the stronger
become the norm, this could well imply limiting access by weaker
parties to less than the status quo.
8. The effort and human resource deployment
required in negotiating FTAs should not be underestimated. Many
in South Africa feel that a disproportionate amount of time and
effort by a limited and overstretched cadre of trade officials
has been expended on the negotiations with the EU. Consultation
processes with social partners in South Africa and the region
have also been demanding. The implications for ACP countries and
sub-regions with even more severe human resource constraints needs
to be taken into account in setting time frames—which are
not particularly generous in the "Guidelines". The issue
of technical support to create effective negotiating teams in
ACP countries and regions is also relevant.
Implications for Southern Africa
The SADC countries are committed to a programme
of action that combines sectoral co-operation with development
integration. A trade protocol has been adopted that envisages
negotiations leading to the establishment of an FTA within eight
years. South Africa has accepted that there is a need to address
the large and widening trade gap between itself and its neighbours
(see figures) and has proposed an asymmetrical FTA in which it
opens its market faster and more deeply than it expects of its
SADC partners. The SADC region is accorded top priority in South
African trade strategy.
In the negotiations with the EU, South Africa
has called for due recognition to be given to processes ongoing
in the region and the potential impact of an agreement on the
region. There has been consultation with both SACU (who are directly
affected) and other SADC partners, but the SA-EU agreement now
being negotiated now is essentially bilateral rather than regional.
The other SADC member states all enjoy Lomé
status. The non-reciprocal Lomé preferences in many cases
provide better terms of access to the EU market, especially for
agricultural goods, than SA is likely to get from an FTA. Lomé
protocols on sugar and beef are, moreover, important for a number
of SADC countries.
Several SADC member states (Angola, DR Congo,
Lesotho, Malawi, Mozambique, Tanzania) would be regarded as LLDCs.
SADC is widely regarded as one of the more successful
regional groupings in the ACP. Yet with the exception of the Southern
African Customs Union (SACU), where the current agreement specifies
that the customs tariff in force in South Africa shall apply to
other members, each individual country administers its own external
tariff. The SADC structures at present have neither the authority,
nor the competence, to negotiate external tariff arrangements
for member states.
In this context a move towards sub-regional,
reciprocal FTAs with the EU would raise a number of questions
and issues:
1. Would there be a separate FTA with non-SACU
SADC, or would the intention be to extend the SA-EU FTA to the
rest of SADC?
In the case of the former, the question of how
to make an EU-SADC-minus-SAFTA compatible both with SADC's own
FTA and the SA-EU FTA, and at the same time take account of the
fact that the majority of non-SACU SADC are LLDCs would arise.
In the latter case a number of potentially serious
implications would follow. The present bilateral SA-EU FTA has
already been identified as likely to impose a number of adjustment
costs on other SADC, and particularly SACU members. These include:
(i) The competitive pressures on producers
in other SACU member countries from duty free EU imports—including,
possibly, subsidised agricultural goods.
(ii) The impact on the budgets of SACU countries
of the removal of duties on a sizable volume of imports in a context
where customs revenue accounts for a major part of total revenue.
Any extension of a bilateral SA-EU FTA to the
region would add a third effect:
(iii) South Africa is likely to receive less
favourable terms of access to the EU for several agricultural
products than provided for by Lomé, and certainly no arrangement
paralleling beef or sugar protocols. If this were to be the norm
applying to other SACU or SADC countries it would mean worsening
their terms of access to the EU market, including for products
that are currently major foreign exchange earners.
2. Who would negotiate such an agreement? As
already indicated SADC, like many other regional organisations
in the ACP, is at present not equipped to engage in detailed trade
negotiations on behalf of the region, and indeed needs to undergo
change and reform to improve its capacity to play its role in
the regional programme.
A successor to the Lomé Convention that
contributes to promoting growth and development in Southern Africa
must clearly offer the region much more in terms of new benefits
(including improved access to the EU market) than it imposes by
way of adjustment costs. It must encourage the ongoing process
of integration, and co-ordination, in the region, and not introduce
too many new complications and diversions. It must grapple with
the real constraints on export growth, including supply capacity
and continuing real barriers in developed country markets, and
more concretely address all the issues raised in paragraph 3.3
of the ACTSA submission.
SACU Exports and Imports to Non-SACU SADC 1993-97
|
|
| January to
December 1993 | January to
December 1994
| January to
December 1995 | January to
December 1996
| January to
June 1997 |
|
| Exports (R bn) | 5,4 | 6,1
| 9,7 | 12,4 | 6,2
|
| Per cent increase | —
| 12,9 | 53,2 | 27,8
| — |
| Imports (R bn) | 1,0 | 1,4
| 1,5 | 2,0 | 1,1
|
| Per cent increase | —
| 40 | 7,1 | 33,3
| 10 |
| Ratio Exports/Imports | 5,4:1
| 4,4:1 | 6,5:1 | 6,2:1
| 5,6:1 |
|
(excludes new SADC members, Mauritius, Congo, Seychelles)
Source:
Republic of South Africa, 1993, 1994, 1995, 1996, 1997.
|
|
| 1994 | 1995
|
|
| Imports EU | 35 | 43
|
| Exports SADC | 20,5 | 26,6
|
| Exports EU | 19,5 | 26,4
|
| Imports SADC | 1,4 | 1,44
|
|
Source:
Department of Trade and Industry, Parliament of South Africa.
|
Dr Rob Davies
Chairperson Portfolio Committee on Trade and Industry
Parliament of South Africa
January 1998
|
