EXPLANATORY MEMORANDUM
ADDITIONAL PROTOCOL TO THE TRADE, DEVELOPMENT AND COOPERATION AGREEMENT (TDCA) BETWEEN THE REPUBLIC OF SOUTH AFRICA AND THE EUROPEAN COMMUNITY (EC) AND ITS MEMBER STATES
To inform Parliament about the implications of the Enlargement of the European Union (EU) and to request that it ratifies the Additional Protocol to the TDCA.
The TDCA was signed on 11 October 1999. It was applied on a provisional basis with effect from 1 January 2000 and entered into force with effect from 1 May 2004. One of the TDCA’s main objectives is to establish a Free Trade Area (FTA) between South Africa and it's largest trading partner, accounting for approximately 40% of South Africa’s trade with the rest of the world.
The TDCA is a rules-based arrangement establishing essentially a mutual free trade area between the parties. It also provides a legal basis for development and other forms of cooperation between the largest trading block in the world and the leading country on the African continent. The TDCA is now in its sixth year of implementation.
On 1 May 2004, 10 additional countries joined the EU. To protect South Africa’s interests, pursuant to Article 22 of the TDCA, consultations were held with the Commission of the European Union (Commission). This led to extensive consultations with stakeholders in Nedlac and the signing on 25 June 2005 of an Additional Protocol to the TDCA, by Mr. Mandisi Mpahlwa, Minister of Trade and Industry. The Additional Protocol deals mainly with technical amendments required by the enlargement of the EU, e.g. new languages and adjustment of quota arrangements, as well as with the time frame for the consultative process under Art. 22 of the TDCA. It provides a legal basis for the extension of the TDCA to the new member states.
In terms of Article 9(1) of the Additional Protocol it must be approved by the EC, the Council of the European Union, on behalf of the Member States, and by the Republic of South Africa, in accordance with their own procedures. For South Africa this means that the Additional Protocol must be ratified by Parliament in accordance with the provisions of Section 231(2) of the Constitution (as was the case for the original TDCA). In terms of Article 31 of the Southern Africa Customs Union Agreement South Africa would also have to conduct consultations with its SACU partners with regard to the extension of the TDCA.
The EC has indicated that this approval process could take some time. For this reason Article 10(2) was included which provides that the Additional Protocol shall apply provisionally from 1 May 2004. The understanding of the parties is that the EU will apply the Additional Protocol provisionally pending the approval process. However, for South Africa’s purposes SARS, as implementing agent, has indicated that it will require Parliamentary approval in accordance with the provisions of Section 231(2) of the Constitution. Legislation to implement the Additional Protocol has been prepared and SARS has indicated that it can implement the TDCA retrospectively from 1 May 2004, once the Parliamentary approval in this regard has been obtained. (See Annex B).
Since the Additional Protocol will have retrospective application, all operators that have had to pay normal customs duties during the period before ratification would be reimbursed. Exporters were therefore advised to keep copies of all their documents for consignments cleared in the new member states with effect from 1 May 2004. If they meet the rules of origin they would be entitled to obtain a EUR.1 certificate or a form A from SARS. Likewise, importers in possession of EUR.1 certificates authorized by the new EU member states would be entitled to refunds with retrospective effect from 1 May 2004 under the preferential rates in the EU column in Part 1 of Schedule 1 to the Customs and Excise Act, (Act no. 91, 1964).
Other conditions that would apply is that the former Generalised Systems of Preference (GSP) of the Czech Republic and Hungary will be replaced by the GSP system of the EU. Consignments eligible for GSP treatment in those countries, from 1 May 2004, would have to be accompanied by a certificate of origin Form A to be issued by SARS (Customs). Furthermore, SA exports to the other 8 new members of the EU will for the first time become eligible for GSP treatment. To qualify, eligible consignments would have to be accompanied by a certificate of origin Form A to be issued by SARS (Customs).
A reduction of tariff duties will result over time in the Government forfeiting revenues collected from import trade. Prior to the entry into force of the TDCA, based on the agreed statistical reference period, under WTO Most Favoured Nation (MFN) trade arrangements between SA and the EU, 57% of the total imports from the EU was cleared under zero duties. This will increase to 86% at the conclusion of the 12-year phasing-down period. Further, the Government does not rely on trade taxes as a major source of income. Instead, tariff policy adjustments are considered primarily in the context of trade policy and industrial strategy developments that lie at the heart of the agreement with the EU. This should also be weighed against the expected long-term positive impact of the agreement on the national economy and hence the possible growth of other sustainable income bases of the Government.
The Additional Protocol to the Trade, Development and Cooperation Agreement would have to be ratified by both Houses of Parliament in terms of Section 231(2) of the Constitution of the Republic of South Africa (Act 108 of 1996).
The Chief State Law Advisers of the Department of Justice and Foreign Affairs- International Law have certified that the Additional Protocol complies with South Africa’s domestic as well as its international obligations.
5. CONTACT PERSON
Ms. Emily Mphahlele
Assistant Director
Europe Directorate
International Trade and Economic Development: the dti
Tel: 012 394 3018
Fax: 012 394 4018
E-mail: [email protected]