BRIEF ON SOUTHERN AFRICAN CUSTOMS UNION (SACU) TRADE NEGOTIATIONS WITH THE EUROPEAN FREE TRADE ASSOCIATION (EFTA), MERCOSUR AND THE USA
PRETORIA, 25 MAY 2005
- In November 1999, the EFTA Secretary General, in a visit to the Minister of Trade and Industry, proposed that South Africa enter into free trade negotiations with EFTA. Following a series of technical exchanges and the conclusion of the new SACU Agreement, EFTA and SACU entered into direct negotiations in May 2003. Six negotiating sessions have since been held.
- The original motivation for negotiations was EFTA's continued effort to align all its trade relations with arrangements negotiated by the EU. For its part, SACU has seen negotiations with EFTA as an opportunity to harmonise its regional trade arrangements with Europe as a whole.
- Negotiations between SACU and EFTA have been largely non-controversial. Having considered EFTA's proposal to negotiate new generation trade issues (trade in services, intellectual property, investment, competition, government procurement), our assessment is that little will be achieved as SACU does not have common policies in these areas. EFTA has agreed, and substantive negotiations are focused solely on trade in goods.
- One further SACU-EFTA negotiating session is envisioned to conclude this agreement. The final session is scheduled for 21 June 2005 in Pretoria. A few textual matters remain outstanding but these are not major stumbling blocks.
- EFTA has offered SACU full duty and quota free access for industrial products with rules of origin equivalent of better than those contained in the TDCA. EFTA's industrial markets in most products are open to SACU through low tariffs (MEN and GSP) but the agreement would provide preferential access that is "locked in" including in textiles and clothing. This is a clear benefit.
- However, EFTA agricultural markets are highly protected and benefit from among the highest per capita levels of support/subsidies (higher than the EU). EFTA has thus offered limited access in basic agricultural products but indicated that this would amount to access over and beyond what currently obtains. Enhanced access in agriculture is particularly important for Botswana, Lesotho, Namibia and Swaziland (BLNS) for the agreement to have any commercial value.
- For its part, SACU is ready to offer EFTA what it has already offered the EU in terms of the South Africa-EU TDCA on both agriculture and industrial products with some marginal adjustments (taking into account BLNS sensitivities and errors made in the TDCA). Our offer has been developed in
close consultation with industry (business and labour) in Nedlac.
- With respect to EFTA agricultural exports that benefit from subsidies (export subsidies/refunds, and other trade distorting domestic support), SACU has adopted a principled position is to exclude such products from the benefits of the FTA until such time as the subsidies are removed.
- Assuming negotiations are concluded in June 2005, we would need to initiate national processes in the EFTA and SACU countries to obtain authorisation for all Trade Ministers to sign the agreement in the second half of 2005, This would then allow us to initiate processes of Parliamentary ratification in the second half of the 2005 with possible entering into force in early 2006.
- President Mbeki was invited to attend the MERCOSUR Summit in December 2000. At that occasion. South Africa with the MERCOSUR members to enter into negotiations to strengthen our trade relations. This was established with the adoption of a Framework Agreement that set out the key principles to inform the negotiations. Of central interest was that South Africa and the MERCUSOR countries agreed to negotiate a preferential trade agreement (PTA) as opposed to a full-fledged free trade area.
- A series of technical exchanges ensued but some adjustment was required with the conclusion of the new SACU Agreement in October 2002 that requires negotiations with third parties be taken up by all SACU members together. This was undertaken and focused negotiations on the PTA were initiated in December 2002. Five negotiating sessions followed.
- The SACU-MERCOSUR Preferential Trade Agreement (PTA) signed 16 December 2004. PTA contains Main Text, and five Annexes. The Main Text sets out the main principles, legal provisions and procedures for the arrangement It also establishes an institutional arrangement (a Joint Committee) to manage the new trade arrangement. Annexes I and 2 set out MERCOSUR and SACU's respective tariff concessions to each other covering around 1000 products each way with preference margins spread over 100%, 50%, 25% and 10%. The other Annexes cover General Rules of Origin, Safeguards, and Dispute Settlement.
- The PTA is significant in that it is the first trade agreement concluded by SACU as a single entity. It is also important that this first agreement is with another developing region, giving meaning to the objectives of South-South cooperation and integration. The PTA creates a basis for further integration and cooperation including through possible further exchanges of tariff preferences, and cooperation on any other area. It establishes a legal framework to govern SACU and MERCOSUR trade relations.
- The Understanding reached between SACU and MERCOSUR on 16 December 2004 outlines a built in agenda for further work that could take the form of amendments or additional protocols to the PTA. These include: further exchange of tariff preferences (including fisheries), rules of origin (that is, specific list rules), customs cooperation, Non Tariff Measures, and autos.
- With the conclusion of a few outstanding technical issues, we intend to initiate national processes in the SACU and MERCOSUR countries to obtain authorisation for all Trade Ministers to sign the agreement in the second half of 2005. This would then allow us to initiate processes of Parliamentary ratification in the second half of the 2005 with possible entering into force in early 2006. SACU-USA.
- The Africa Growth and Opportunity Act (AGOA) enacted in 2000 offered eligible Sub-Saharan African (SSA) duly, quota free market access on 4,600 product lines, and foreshadowed that the US may pursue FTA negotiations with SSA countries in future. In January 2002, the US Trade Representative (USTR) formally proposed the FTA option to SACU Trade Ministers.
- The decision by SACU to enter FTA negotiations with the US was informed by strategic considerations as the benefits of constructing a long-term and predictable trade relationship with the US were recognized. An FTA could provide additional impetus to efforts to promote economic development in SACU, as part of wider efforts to integrate the region into the global economy. SACU noted the negotiations be informed by the developmental principle of special and differential treatment and be translated into flexible treatment for SACU consistent with World Trade Organisation (WTO) Agreements.
- The negotiation, in our view, would have to accommodate different levels of development and establish obligations commensurate with SACU institutional capacity and consistent with its development priorities. These principles were captured in the Terms of Reference (ToR) agreed at the outset of the negotiations.
- The US approach to trade negotiations is based on a detailed and comprehensive Congressional mandate set out in the Trade Promotion Authority (TPA) of 2001. This mandate is further refined through an inter-US government consultative process that draws in organized business, labour and environmental groups.
- The negotiations have stalled with substantive negotiating differences on all issues. The thrust of US objectives would, in our view pose a series of difficulties that may constrain development policy in services, investment, procurement, and intellectual property. It may also burden SACU institutions with burdensome and, sometimes, inappropriate implementation obligations.
- Various attempts to re-start the negotiations have been undertaken the last being the meeting between SACU Ministers and USTR Ambassador Zoellick in Walvis Bay on 10 December 2004. Both sides reiterated the importance of the engagement and the need to find an accommodation to advance the negotiations. It was agreed that the negotiating time frame be extended and no new deadline is proposed. At present, SACU and the USA are seeking a mutually convenient time to meet for a broader discussion to search for common ground and develop a common approach on the way forward.
Chief Director: Trade Negotiations
International Trade and Economic Development