South Africa’s Regional Trade Agenda: Reflections on SACU, SADC, EPAs

1. Trudi Hartzenberg Trade Law Centre for Southern Africa trudi@tralac.org South Africa’s Regional Trade Agenda: Reflections on SACU, SADC, EPAs

2. Key developments in global economy Overview of South Africa’s trade profile Trade Policy Priorities Regional Integration Trends: - Multilateralism and Regionalism - Deeper Regional Integration Regional Integration in Southern Africa: South Africa Priorities EPA Negotiations: Where does South Africa stand? Conclusions Overview

3. Key developments in the global economy • New Clusters of Manufacturing Excellence/Competitiveness (many located in developing countries eg BRICSA) • Production fragmentation • Role of Services (in economies, employment creation, in competitiveness, in trade) • Governance developments (1995 – WTO, proliferation of regional trade arrangements, new trade agenda)

4. Exports still predominantly mining and basic processed goods • Some diversification of exports Source: Quantec Export Profile

5. South Africa’s Export Profile • Trading partners are primarily developed countries • Exports to SADC account for 9% of total exports • Exports to EU are approx 35% of total • Asia has become an important destination for SA exports (what do we export to Asia?) • Japan has become the single most important country export destination

6. South Africa’s Export Profile

7. South Africa’s Imports

8. South Africa’s Import Profile • Asia has become an important source of imports, particularly China: • - China accounted for ±1% in 1992, today ±10% - now 2nd most NB source after Germany • Trade surplus with NAFTA as exports R45.7 bn vs imports of R40.5bn • EU still primary trading partner

9. Exports to key trading partners still predominantly resources adn resource intensive manufacturing • Exports to SADC of advanced manufacturing • There has been some diversification: increased exports of machinery & vehicles to NAFTA Source: Quantec What are we exporting and to whom?

10. Fastest growing exports mostly resource-based incl. manuf. South Africa’s Fastest Growing Exports

11. South Africa’s Regional Trade Agenda • Free Trade Area (liberalise substantially all trade, within a specified period of time – Art XXIV GATT) ie eliminate tariff and non-tariff barriers on intra-regional trade, but member states maintain their own tariff policy towards third parties • Customs Union (common external tariff - CET, common customs territory) ie surrender policy space to determine CET KEY Development: Deeper Regional Integration (beyond trade in goods to services, investment, competition, govt procurement..), this reflects the evolution of the NEW Trade Agenda - WHY IS THIS IMPORTANT?

12. South Africa’s Regional Trade Agenda • South Africa is a member of SACU, SADC and has concluded many bilateral trade agreements (eg Malawi, Zimbabwe, EU) and is negotiating or considering negotiations with other partners (eg India, China, MERCOSUR, US...) • Trade Policy Priorities: South – South Agreements, Look East • How does this fit with South Africa’s multilateral trade agenda eg on services • How is trade policy made in South Africa (role of dti, Treasury, Foreign Affairs, post-Polokwane era)

13. SACU • Oldest functioning customs union • 2002 Agreement: - Legal and institutional development – annexes and new institutions incl SACU Tribunal, Tariff Board; common negotiating mechanism (Art 31) - Common Policy Development (Part 8: common policies on industrial development, agricultural policy, cooperation in enforcement of competition policy and unfair trade practices) BUT: strong focus on revenue sharing (dependence of small countries’ govt budgets)

14. SACU cont’d • Press Reports recently indicate that South Africa strongly support SACU – what needs to be done for sustainable regional development (incl South Africa’s) - Legal and Institutional Development (SACU Council meeting 4 April), what could be on the agenda? - Annex on Tariff Board (collective determination of the CET, remedies) - Annex on SACU Tribunal (rules based dispensation) - Common Policy Development (mandate to the SACU Secretariat to start process of common policy development) - Mandate to the Secretariat to develop a deeper regional integration agenda ( eg services – although not directly covered, it is by implication there through common policies for industrial development, addressing revenue dependence) -A SACU Summit (Heads of State and Government), and

15. SADC’s Regional Integration Agenda • SADC Protocol on Trade > SADC FTA (legally binding commitment) • Regional Indicative Strategic Development Plan (RISDP – enjoys political legitimacy but is not legally binding) > SADC Customs Union, 2010 • SADC Extra-Ordinary Summit, October 2006, reaffirmed CU objective (again in Lusaka in August 2007) • Debate on the appropriate model for the SADC Customs Union takes place in the SADC Task Force on Regional Economic Integration • Taking a step back: why a customs union? - What will a customs union achieve that an FTA cannot?

16. Towards a SADC Customs Union? • Customs Union: - adoption of a common external tariff (CET) - a common trade policy/ loss of independent trade policy making (compromise of policy space) - no anti-dumping or safeguard measures against other parties - the need for competition policy and laws - no need for preferential rules of origin but non- preferential (or MFN) rules of origin towards third countries - policy coordination & institutional frameworks

17. SADC Customs Union (Cont’d) • Overcoming the CET challenge largely depends on the rationale or motivation of forming the CU • Not clear from policy pronouncements such as the RISDP • Regional Integration targets follow text book theory on economic integration and draws on European experience: - SADC FTA (2008) - SADC Customs Union (2010) - SADC Common Market (2015) - SADC Monetary Union (2016) - SADC Economic Union (2018)

18. SADC Customs Union (cont’d) • Enhancing intra-regional trade remains a rather weak basis: - intra-regional trade patterns: low levels of intra-regional trade f lows, except bilateral trade flows with South Africa (BLNS, Malawi, Mozambique, Zambia and Zimbabwe) - ROW dependence for the rest of SADC economies - industrial structure and trade potential - evidence from the SADC FTA process • Therefore, the rationale has to be sought elsewhere? • Gradual integration into world economy?

19. SADC Customs Union (cont’d) • Wide differences exist on objectives and rationale behind tariff structures: protection of sensitive sectors, industrial policy goals or revenue generation • For example: South Africa and Mauritius are now emphasizing industrial policy motivations for lower tariff regimes > this worries Lesotho and others that are tariff-revenue depdendent • Can a common agreement be reached on the principles of establishing a CET? • The challenge is to reconcile the differences in motivation for tariff setting

20. SADC Customs Union (cont’d) • For a large number of countries, customs revenue constitutes a significant part of government revenue • The level and extent of dependency on customs revenue in SADC varies, e.g. South Africa (2.9%), Angola (5.9%) Madagascar (41%), Lesotho (42.9%) based on 2005 data • For example, applying Mauritius tariff as a basis for the CET, there will be large revenue adjustments in Tanzania, Zimbabwe, Malawi, Lesotho and Madagascar. • Revenue collection will also be a problem whether based on collection at the point of entry or at destination. Consider landlocked countries! • Designing an appropriate revenue sharing mechanism such as in SACU is problematic too.

21. South Africa and EPAs • South Africa concluded the TDCA in 1999 (came into effect 1 January 2000) – free trade area (12 year implementation time frame) • African, Caribbean and Pacific countries: Lomé Conventions (from 1975) provided preferential access to EU markets (no reciprocity), however such unilateral preferential arrangements are not WTO compatible. Two sets of developments: • When SA became democratic: requested access to Lomé, access to trade provisions denied: led to negotiations to conclude TDCA • ACP countries and EU negotiated Cotonou Agreement (2000) which continued preferential market access to EU, EU applied for a waiver from WTO to be able to do this until 31.12.2007. Cotonou paved the way for WTO compatible EPAs

22. EPAs cont’d • EU indicated that it preferred to negotiate with regional groupings of countries rather than 77 countries (ACP) individually, but it did not specify which groups should negotiate together; • Groups of countries then elected to negotiate as coalitions, and the SADC-7 was formed (Botswana, Lesotho, Namibia, Swaziland, Mozambique, Angola and Tanzania), with SA as a result of its SACU membership as an observer in the group (Note that SADC member states are in 4 different EPA configurations (SADC, EAC, ESA, CEMAC))

23. EPAs cont’d • 2004 SADC Negotiating Guidelines (regional service integration agenda to be linked to EPA commitments, flexibilities) • 2006 SADC Strategic Framework: no binding commitments on services but only capacity building support from the EU, South Africa to join as a full negotiating member (paradigm shift) • EC response: no fixed obligation to liberalise services, support regional service liberalisation commitments, no blank cheque for capacity building support, SA admitted as negotiating partner

24. EPAs cont’d • Negotiations during 2007 - Emergence of key differences: scope of agenda (SA wants trade in goods agreement, EC wants full EPA, smaller SADC states want trade in goods and services and trade-related issues) - Key challenge: WTO Waiver and its implications for Botswana, Namibia and Swaziland (developing countries – fall back position is GSP, but beef is not included) - Least developed countries (Lesotho): Everything but Arms - South Africa: TDCA

25. EPAs cont’d • Negotiating Infrastructure How does the EU negotiate? European Commission gets a mandate from the member states via the European Council (supranational institution) How does the SADC EPA negotiate (no institutional construct for the SADC EPA Group – SADC EPA Unit, national level, chief negotiator – Botswana), role of private sector, civil society? Eg Namibia: ATF (Govt negotiates on our behalf) • What happened: B, L, S, M initialed an Interim EPA – Nov 2007, Nam initialed with concerns on 12 Dec, SA did not sign. • B, L, N, M are entering phase 2 (services and investment)

26. EPAs cont’d • Contentious Issues Services: close link to cost efficiency and competitiveness (role of services in economy eg manufacturing) Consider South Africa’s Services Agenda: eg Telecoms: managed liberalisation (introduction of competition in fixed line telephony – decision made in 2004, but no competitor for Telkom yet, meanwhile fixed line remains a key constraint on other telecoms developments eg mobile, broadband, and as a result other services eg education, healthcare and also overall economic activity (manufacturing) and poverty Financial Services (bank charges,.... Nam and SA among highest in the world)

27. EPAs cont’d • Without support or motivation for a domestic regulatory agenda, what can a trade in services agenda do? - Example: Liberalisation of services in EPAs (Botswana or Mozambique) eg financial services, or telecoms How to develop a services liberalisation agenda? • Prioritisation of Services sectors for liberalisation? • Cost-benefit analysis (domestic development priorities, efficiency gains) • Assessment of priority sectors in partner’s economy (is telecoms in the EU internationally competitive?)

28. EPAs cont’d • Investment • Links to job creation, growth and enhanced trade performance • Questions of investment governance (a rules-based system) if we do not have this, what then: • Examples: RAMATEX and others

29. Conclusions • What are South Africa’s trade policy priorities? • South Africa’s role in the region, in Africa • Integration into the Global Economy (South – South relationships, Look East) • Scope of the trade agenda (beyond trade in goods – implications for policy making)