SADC Trade Tribunal: hearings

2. Summary of Recommendations

COSATU's approach to the Protocol moves from a fundamentally different starting point to our approach to the EU Agreement. Whereas South Africa's relationship to the EU is a "David and Goliath" situation, in the Southern African case it is South Africa which is the regional hegemon, particularly at the economic level. Many of the problems experienced by Southern African countries, particularly those neighbouring South Africa, have resulted from the actions of South Africa over many decades. This ranges from the core-periphery economic relationships fostered with these countries which have tended to lock their economic structures into primary production, to the more overt political and military destabilisation conducted by the Apartheid regime.

Many Southern African countries carried part of the burden of the South African liberation struggle - in some cases as a conscious choice, in other cases this was foisted on them. It would be difficult to quantify how much stronger regional economies would be today had it not been for the destruction unleashed by Apartheid South Africa. But what is clear is that the programmes of destabilisation and counter-revolutionary wars in countries like Mozambique, Namibia, Zimbabwe and Angola have brought untold hardship to the people of these countries. It is thus fair to say that South Africa has a moral imperative to contribute extensively to sustainable and equitable development within the region.

Over and above this moral imperative, the destabilising potential for South Africa of regional underdevelopment has been extensively discussed. Negative effects include political and economic refugees to South Africa, increased crime, and downward pressure on South African wages and working conditions.

Given the above context, and the fact that the South African economy far outweighs those of the region, our approach needs to be totally different from our approach to trade with the EU. Trade and economical development within the region is a sensitive issue for both COSATU and South Africa as a whole. Just as we have criticised imbalances in trade relations between countries of the North and the South, it would be incorrect for us to make an offer to Southern African countries which results in a deterioration in their position.

As a trade union federation we cannot support job loss for South African workers, particularly given the extremely high unemployment rate we are currently faced with. We have a strategic interest in growing the economy of the Southern African region as a whole, which will entail the growth of employment in the region in the medium term. The sharing of jobs within the region must be based on acceptable wages and working conditions, to raise the standard of living of our people, increase demand, and avoid the scenario of a "race to the bottom", where countries of the region compete on ever-lower labour and environmental standards.

COSATU would be opposed to the transfer of jobs from South Africa to other countries in the region if such transfer is on the basis of low wages, abysmal working conditions, or suppression of worker and trade union rights. This would not constitute development or empowerment for the country in question, and would just result in super-profits for South African companies. Specific proposals aimed at preventing this scenario are tabled later in this document.

Due to time and capacity constraints as well as the limitations imposed by the lack of impact assessments, COSATU will not be commenting on the specific levels of the offer as it currently stands. For us a more fundamental issue is the appropriateness of a trade protocol as the centrepiece of our regional development strategy. Trade liberalisation within the region presupposes productive capacity within other Southern African countries to take up increased trade opportunities. COSATU is not convinced that such productive capacity exists. In our analysis the major obstacle to regional economic development is not primarily a lack of market access, but rather a lack of productive capacity.

There is a danger of the Trade Protocol - notwithstanding its asymmetrical and differential bias in favour of other countries in the region - deepening the existing polarisation within Southern Africa. Free (or partly liberalised) trade tends to benefit stronger economies at the expense of weaker ones. Tariff liberalisation has the potential of destroying domestic economies in other parts of the region, while simultaneously causing job losses within South Africa. For example, simple relocation of South African companies to the rest of SADC would exacerbate the South African unemployment problem, while simultaneously limiting the potential for domestic industrialisation in other SADC countries.

South Africa should avoid the Protocol deepening rather than transforming the existing inequalities in economic relationships within the region. "Regional development" does not mean South African industries sourcing their primary inputs from other SADC countries in a classic core-periphery way. Regional industries need to develop in their own right, rather than just as suppliers or adjuncts to South African industry.

This suggests that a regional trade Protocol should have been preceded by regional industrial and development strategies. COSATU has taken note of the regional Spatial Development Initiative (SDI) projects, particularly those in the Eastern parts of the region. These in themselves, however, cannot be said to constitute a regional industrialisation strategy. Infrastructure development and integration would, however, constitute a key component of such a strategy.

A regional industrial strategy should be geared towards the promotion of up- and down-stream linkages within the region. This would advance regionally based production processes, with different countries participation based on their static and dynamic comparative advantages. By this we mean that countries should maximise the benefits from their existing strengths, while simultaneously attempting to improve their comparative advantages in moving up the value-adding chain.

In such a situation the relocation of a factory within SADC is not disastrous, if other stages of the production process are located elsewhere within the region. Geographic proximity of the region would also favour this type of regional industrial integration over production processes which are fragmented over different continents.

COSATU is cognisant of the desire of the South African government to implement the Protocol as a matter of urgency. In fact, as discussed in our submission on the EU Agreement, we would have preferred the implementation of an agreement within the region prior to the concluding of an agreement with the EU. Nevertheless, we propose that the government urgently initiates the formulation of comprehensive regional industrialisation and development strategies which could be implemented as soon as possible after the implementation of the Trade Protocol. Such strategies should be aimed at building up productive capacity within the region, particularly within those countries whose economies have been the most devastated. This would ensure that such countries would be capacitated to take up enhanced trade opportunities within the region, while minimising/avoiding capital flight of South African companies in pursuit of lower wages and working conditions and "compliant" workers. It would also minimise the negative effects of the EU Agreement on SADC countries.

As with the EU-RSA trade and development and co-operation agreement it has been disturbing that government has commissioned no comprehensive impact studies on the possible consequences of the agreement upon South Africa or the region as a whole. COSATU would have thought that given the importance of the agreement that government would have commissioned a general multi-sectoral analysis of the probable impacts of the agreement; as well as separate sector specific impact analyses. These analyses could also have looked at the impacts of the agreement on specific areas of the country; as well as vulnerable groups (e.g. women).

While it is acknowledged that the South African economy is large (relative to that of all other SADC states) and therefore it could be argued that the potential harm (or benefits) to the South African economy may not be that great, COSATU is of the view that the agreement may affect particular sectors (and sub-sectors) of the economy particularly hard. There could be significant job losses as South Africa imports from the rest of SADC rather than source domestically; and when South African companies start to relocate to other SADC states. Similarly, there seems to be limited information about growth prospects for South African firms arising from the Protocol.

In COSATU's view it is vital that some assessment is made of the magnitude of impact of the SADC agreement upon South Africa (and other SACU states). South Africa is in a fortunate position (unlike the EU-RSA agreement which for all intents and purposes has been finalised) as this impact analysis can still be completed prior to the finalisation of the tariff arrangements. Therefore the DTI should be requested to urgently commission detailed research which would identify those "vulnerable" sectors of the economy. Thereafter it should be required commission in depth research on specific impact of the agreement (especially in relation to jobs) on those vulnerable sectors. From such studies we should be able to identify "winners" and "losers" within the domestic economy, and take appropriate steps to ensure that gains are shared and losses supported in cases where such losses are unavoidable. Where appropriate, the trade offer should be adjusted to minimise losses.

It has been anticipated that labour-intensive industries within South Africa, such as textiles and clothing, are likely to relocate within Southern Africa purely on the basis of lower labour costs. This would be likely to have a disproportionately negative effect on women workers within South Africa.

Trade liberalisation within the region presents a danger - which has been acknowledged by the government - of the region becoming a mere conduit for goods manufactured elsewhere on the basis of even lower wages and working conditions to be imported into South Africa. COSATU regularly hears of concerns from our manufacturing affiliates of for example items of clothing or footwear being imported from Asia, minor additions being made, and being sold on the South African market hence undermining our domestic industries. This would not build industries in the rest of the region, but would lead to huge job losses in South Africa. The key to preventing this is strong Rules of Origin provisions which are consistently applied.

COSATU proposes a tightening up of the existing Rules of Origin proposed in the offer. For example, in the clothing, textiles and footwear sector the South African Clothing and Textiles Workers' Union (SACTWU) has proposed a local content requirement of at least two stages of transformation and 90% of value added for goods to benefit from trade preferences within SADC. COSATU also proposes a further tightening of Rule of Origin in a phased manner over time. This would encourage SADC countries, as they progressively improve their manufacturing capacity, to base more and more of the production process within SADC.

Comprehensive monitoring is required to ensure that Rules of Origin agreed to are not evaded. An example of an undesirable scenario could be the establishment of one closed corporation in a country in the region to import goods from a cheap foreign producer, and another closed corporation in the same or different regional country which purchases the goods and resells them in South Africa. This could give an impression at first sight that they have been locally/regionally sourced. Allowing such goods to qualify for trade preferences under the Protocol would be like having almost no barriers to importing from anywhere. What is needed within SADC is to build up manufacturing capacity, not just to promote a parasitic trading class which uses the region as a conduit to the South African market.

To ensure the enforcement of these Rules as well as other relevant provisions of the Agreement, COSATU proposes the establishment of an Independent Complaints and Investigations Commission (ICIC) within SADC. This would be a multilateral institution, possibly with officials seconded with national institutions, with powers of investigation and seizure in all member countries. Such a proposal seeks to balance the need to respect national sovereignty with the need for effective enforcement. This is a role which is often difficult for national police forces or customs officials to play, where local companies are benefiting from a less than stringent application of the rules.

We are convinced that South African business will support us on such proposals.

COSATU registers its disappointment that the current Protocol does not provide for any social clause. A social clause is vital in ensuring that decent working conditions and human rights prevail in the region, both for the sake of workers in other SADC countries and to avoid downward pressure on wages and working conditions within South Africa. COSATU is aware of a concern that South Africa should not be perceived to be dictating to other countries in the region. However, this should not translate into an attitude that appalling working conditions and the suppression of basic worker and trade union rights are "domestic matters". Although a separate "social charter" is being discussed within SADC, an agreement on a binding social clause needs to be a direct part of the Protocol and offer under discussion today.

COSATU feels very strongly that the Protocol should include a social clause, which ensures that all-participating countries at a minimum respect and fully implement the four core sets of internationally agreed labour rights. These are freedom of association and effective collective bargaining; no child labour; no forced labour; and freedom from discrimination. There should be adequate monitoring mechanisms which include legitimate trade unions, and arbitration on any disputes about compliance.

Furthermore, COSATU proposes the categorical exclusion of any goods produced within Export Processing Zones (EPZ's) in the region from the trade preferences. Production within these zones tends to rely on even cheaper labour and the suspension of labour rights. Any area (geographic or a production unit) in which the core ILO conventions are suspended in whole or in substantial part would be excluded under this principle. Including such zones under the preferences of the Protocol would not only entrench their existence but would also put pressure on countries to base their competitive advantage on lowering labour standards. The proposed Independent Complaints and Investigations Commission could play a vital role in ensuring the implementation of these exclusions.

COSATU is cognisant of its responsibilities to promote strong trade unions in the region, which can fight for improved wages and working conditions in other countries. We are already engaged in this exercise, both through the Southern African Trade Union Co-ordinating Council (SATUCC) and on a bilateral basis. These initiatives cannot, however, replace the formal inclusion of a social clause in the Protocol and we urge Parliament to call for this, and in fact to make ratification of the Protocol condition on the inclusion of such a clause.

Our submission on the EU raised concerns around non-tariff barriers to trade. South Africa should not open itself to criticism of using similar barriers in the region, such as Sanitary and Phyto-sanitary Standards (SPSS) and Technical Barriers to Trade (TBT). COSATU fully supports the need to ensure that adequate safety and hygiene standards are met for South African consumers, and that for example there is compatibility of electrical appliances. The challenge is how to assist in empowering other SADC countries in meeting appropriate standards, so that these standards truly act to protect consumers rather than as obstacles to regional trade. COSATU proposes that DTI, in conjunction with other relevant bodies, develops proposals in this regard.

The Protocol will obviously lead to both winners and losers in the South African economy. It would be simplistic to think that workers who lose their jobs in an industry negatively affected by the Protocol would simply be able to gain alternative employment in another industry benefiting from growth opportunities emanating from the Protocol. This would be constrained by, amongst other things, the limited mobility of factors of production. An important redistributional role thus arises for government in ensuring that the "losers" from the Protocol, particularly those workers with limited alternative options, are supported. Specific proposals for this are set out below.

With the operationalisation of the Protocol it is clear that there could be many firms / sectors / regions / portions of the labour market (e.g. women) in the economy that could experience severe difficulties in adjusting to the increased penetration of the RSA market by SADC products. Should this happen-substantial number of workers could lose their jobs. It would be patently unfair that workers should have to take the brunt of the effects of the Protocol. COSATU proposes that government immediately identifies those sectors of the economy that would be particularly vulnerable to the effects of the Protocol. This would enable strategies to be implemented to these vulnerable sectors to adapt, or soften the impact, etc.

COSATU tables two key proposals in this regard:

• Support for industrial restructuring

Sectoral restructuring funds can be instituted, to be jointly managed by government, business, and labour, to fund supply side measures for negatively affected sectors. Furthermore, government should adjust the existing government supply side / industrial support incentive programmes in order that affected firms or sectors can withstand some of the shocks that the Protocol may present. In some instances it may be necessary for government to introduce entirely new support measures. The type of initiatives which could be supported both by sectoral restructuring funds and by independent government initiatives could include investment incentives, technical assistance with restructuring, accelerated research and development, and skills training for workers in the sectors.

• Support for workers affected

COSATU proposes that as soon as this Protocol comes into effect a programme should be immediately implemented to assist all those workers who are dislocated as a result. Consultative studies would be required to attempt to identify and quantify job losses which come about as a (direct or indirect) result of the Protocol. The support measures proposed by COSATU will require the establishment of additional support measures over and above those existing resources that emanate from the Unemployment Insurance Fund; the Social Plan; and training programmes. COSATU has tabled proposals in this regard in other forums.

On the assumption that this Protocol may offer significant economic opportunities for the RSA, the question is posed as to how the RSA will be able to maximise these potential opportunities. While the business sector will play a major part in the maximisation of these opportunities labour is of the view that government must play a lead role in this initiative.

COSATU tables the following specific proposals :

• the DTI (in conjunction with other affected government departments) should be requested to design and deliver a comprehensive educational / information programme regarding the opportunities that this Protocol will offer the RSA economy. The general and sector specific programmes should concentrate on how the RSA can :
• encourage the promotion of its exports;
• attract new investment that will be able to take advantage of the new trade preferences;
• focus on opportunities for SMME's;

COSATU would propose that the programmes should not only be drawn up by those people charged with the specific responsibilities for export promotion and investment, but that it should also involve those people who were active in the negotiation of the Protocol itself. Should it be necessary the government should provide additional financial resources to sectors so that they can do thorough research on what new opportunities have been created.

All these programmes should be finalised prior to the coming into force of the Protocol.

For South Africa an important key to the success of the SADC trade protocol will be the ability of the customs administration(s) - both South African and in the rest of SADC - to manage and regulate the flow of goods. Members of the portfolio committee will be aware of the damage that has been done to South African industry due to problems within the customs administration, including the fact that customs is under resourced.

COSATU acknowledges that some significant strides have been made in order to "fix" South Africa's own customs function. We are, however, still concerned about the readiness of South Africa's customs to handle the SADC agreement (and the EU agreement) from 1 January 2000.

COSATU proposes that in the context of the EU and SADC agreements; and the numerous bi-lateral agreements already in place (e.g. RSA-Malawi, RSA-Mozambique, RSA-Zimbabwe, etc); that the Trade and Industry Portfolio Committee in conjunction with the Finance Portfolio Committee should set up a task team to look separately at the issue of customs controls. This task team should look at both SA customs; and the effect inefficient and corrupt customs located elsewhere in SADC could have on the RSA. The task team needs to liase with the team working under the NEDLAC Trade and Industry Chamber.

Specific proposals on improving the efficacy of South African customs and excise include the following:

• increasing the inspection rate of goods
• developing a new valuation methodology and enforcing practical valuation procedures at ports of entry
• improving the technical ability of customs officials to identify and value goods accurately
• tighten security at customs warehouses to stop the theft of seized goods
• improve the resources available in the Board of Trade and Tariffs for anti-dumping and countervailing investigations
• prosecute retailers and middlemen caught with goods which have entered the country without the proper payment of duties, publicly disclose the names of guilty parties and apply stiff penalties against companies and individuals found to have benefited from such abuses
• implement the remainder of the proposals for reform of customs and excise as submitted by Labour to the Presidential Jobs Summit.

These proposals should be implemented as far as possible before the implementation of the Protocol, rather than at a later stage.