Economic Partnership Agreement (EPA) latest developments: update by Deputy Minister of Trade & Industry

Meeting report

Mr J Sithole (ANC) noted that there was no political office bearer for the Department of Foreign Affairs at the meeting as was required by the Portfolio Committee on Foreign Affairs. He asked that the Department of Foreign Affairs be barred from making a presentation at the meeting.

Update on Economic Partnership Agreement (EPA) Negotiations
Deputy Minister of Trade and Industry Rob Davies began by giving the origins and stated objectives of the EPAs. The Southern African Development Community (SADC) and the European Commission (EU) configuration were detailed. The SADC and EU interim EPA was clarified. An interim EPA was negotiated as the deadline loomed and no agreement was reached. The interim EPA was explained and South Africa refusal to sign. However, Botswana, Lesotho, Swaziland and Mozambique signed. Namibia signed under protest. Further issues regarding the interim EPA were discussed including the fact that there was fragmented integration in Southern Africa. Many African, Caribbean and Pacific (ACP) countries were faced with difficult choices. Many of the ACP countries shared the concerns of South Africa as only 35 of the 78 ACP countries initialled the interim EPA. The recent developments were given. The EU acknowledged the concerns expressed by some ACP countries. The next steps would include avoiding the immediate urgency to sign and ratify the interim EPA. It was also noted that there were more entrenched divisions in the SADC and the impending threat to the Southern African Customs Union.

Discussion
Mr D Mkono (Eastern Cape; ANC) was interested in whether free trade was fair trade. The answer depended on who was asked. He was not sure that free trade was the answer for the developing nations considering the problems they were experiencing.

Deputy Minister Davies replied that there were beyond-the-border issues for developing countries and these included issues such as standards. They could get duty-free access for beef into the EU but the standards had to be upheld. Recently a number of supermarket chains in Europe had introduced “food miles”. This meant that in order to get products overseas, carbon was used, as opposed to their domestic products that used less carbon. Labels were placed on products to indicate the use of carbon. When this issue was raised South Africa was told that it was a private sector issue. Countries were forced to sign the interim EPA because they would suffer a loss. Namibia did have a long-term ambition to diversify trade as did Lesotho that predominately bought and sold in South Africa.

Mr M Malahlele (ANC) noted that a number of countries that signed the interim EPA indicated that they were obliged to sign because of potential market losses that could occur. He wanted to know what were the trading transactions between the countries that had signed.

Deputy Minister Davies replied that many of the neighbouring African countries did not see trade diversification as a priority presently. Botswana and Namibia exported beef to the EU. Previously they had a quota that allowed them to send a specific amount of beef into the EU duty-free. The EU bargained with the countries that if they signed the interim EPA they could export as much beef as they could duty-free. If they did not, the next option was the general system of preferences that meant they would have to pay 90% duties. 

Mr Malahlele asked to what extent they were able to indigenise the EPA negotiations as African countries. Was there a dichotomy between the negotiators and what was happening to close that dichotomy?

Mr Sithole asked what was the view on changing the way South Africa operated since Parliament was only consulted after the negotiating process has been completed. The negotiation framework and parameters should be decided on with Parliament before the negotiating process had been embarked. Should the parameters shift, then they would have to come back to Parliament to agree on new parameters.

Deputy Minister Davies replied that as the government, they had made quite a lot of effort to engage with Parliament, the National Economic and Development Labour Council (NEDLAC) and other constituencies that were involved. During the negotiations, they were told by the EU that there were certain things that were considered ‘red lines’ and therefore non-negotiable. It was assumed that the other countries were supposed to accept these. Parliament had a right to be involved in these processes earlier, and to interact with the negotiators throughout the negotiations. Parliament could also play a role in changing the balance of forces; it could indicate this through the various forums. Strengthening the role of Parliament and other institutions were important.

Mr Sithole asked about the political impact to the region. There has been a negativity that emerged from one country toward another. South Africa was blamed for the process. He asked to what extent had it affected the regional political dialogue. What safeguards had been taken by South Africa to protect the economy?

Mr Sithole noted that at the height of the negotiations, South Africa went to Botswana and returned in a weaker position. He asked why this happened and to what extent was South Africa able to deliver on their commitment.

Deputy Minister Davies replied that they did not go into the negotiations weaker. South Africa indicated that the addressing of their concerns were the basis on which they would initial the EPAs. They had an agreement there would be a process that would address the issues.

Mr Sithole asked why such an unpalatable situation was nursed for such a long time, why was there no capacity to fix or change the situation.  There were some countries in the region that felt they owed the empire for their independence.

Mr Sithole asked about the approach of South Africa to the lesser-developed countries. The Committees were always told that projects were being worked on. If Lesotho was a lesser-developed country and was promised development by South African projects, yet these were not delivered, then they could not be blamed for signing the interim EPA with the EU. The current difficulties that South Africa had would continue if they did not help develop Lesotho. To what extent was South Africa developing programmes to assist with developments in countries such as Lesotho.

Deputy Minister Davies replied that the negotiations had raised fundamental questions about regional integration that needed to be confronted by South Africa. They needed to have a sit-down discussion about the future of the Southern African Customs Union (SACU). He believed that SACU could move forward towards an economic union and a common market and this would include a sense of an industrial policy. Lesotho contributed to the revenue pool R87million and received from the revenue pool R2.78 billion, that was about half of its budget. They received more funding from SACU than from the EU. Some of those funds should have gone toward regional programmes and deeper integration. If they could not reach agreements on common policies then they would have to start rolling SACU back into the direction of a free trade area. South Africa would have to loosen their ties and withdraw from Article 31. South Africa did not want to throw their weight around. He was not sure if the moment was coming for South Africa to be more firm, but he believed that the region was at a crossroads. South Africa had already removed 97% of the duties in the Southern African Development Community (SADC) and they were removing duties more slowly and supposed to be finished by August 2008. The trade patterns had not changed by much. This meant that the real issue in terms of the trade imbalance was supply capacity in the other countries to produce products that could sell in the South African market. Regional programmes should be about cooperation to boost infrastructure and productive capacity.

Mr Sithole asked if South Africa was assisting in the administration of the external tariffs should South Africa not sign the EPAs.

Mr M Ramgobin (ANC) understood the aspirations and vision for Africa. There was a tremendous simplification of the situation that trade was viewed in isolation from other considerations on the continent. Trade in the European context could be interpreted as a conspiracy of common interests for the EU. If the continent was thought to have a central position on major economic issues, it was a tall order to expect a fragmented region to respond from a unified position. This was because the conspiracy of interests of Europe had an historical root and the economic dependency of Africa was an integral part of geo-political manoeuvring. If it was geo-political manoeuvrings, an Africa that was united on a particular issue was not wanted.  Europe could not successful manoeuvre through Africa if it presented a united front. The weakness in Africa was consolidated by the presentation that noted entrenched divisions in SADC and impending threats to SACU. It was in the interest of the people who had created the division to further entrench it. If they had to build reasonable consensus, there was a supposition that they did not have reasonable consensus. It was in this context that it was a pity that the political head of Foreign Affairs was not present to make a political comment.

Deputy Minister Davies replied that he thought that there was an enormous battle for economic influence in Africa. The rise of India, Brazil and China had created a new dynamic in the world economy. The share of African trade with Asia has significantly gone up and the proportion with Europe has gone down. China offered demand for mineral products, high prices for mineral products, a series of agreements that South Africa was beginning to discuss with China in the context of the ten-year anniversary celebrations of diplomatic relations, which was unprecedented, and there was an actual cooperation to reduce the trade imbalance with China. In that context it was important that they maintain a diversity of options.  The EU knew that it was competing with China and in response it has was the global Europe - new generation free trade agreements. The new generation free trade agreements were different. They were not talking about previous conventional trade agreements. This trade agreement meant that it had to be free trade and it meant that a substantial number of duties were removed. They recognised that there should be a lower percentage for developing countries. The ball had shifted and Mozambique, for example, had taken bigger tariff reductions toward the EU than it was required to do under the SADC Free Trade Area (FTA). The primary issue was that in order to be able to make the access to the EU real they would have to address beyond-the-border issues and this would broach the service sector.  They were not really interested in the service sector in Lesotho. The EU wanted access into South Africa’s service sector. One of the reasons that South Africa did not want to enter into a service agreement with the EU was that South Africa did not have many bilateral offensive interests in the EU market. There were one or two South African firms that were active in the EU market. South Africa was not interested in a bilateral services agreement because it meant that the country would give more than receive. The other beyond-the-border issues were intellectual property, which technically was not such an issue; another issue was transparency in government procurement, when actually they wanted procurement rules. Government procurement was a big source of business in most developing countries. The EU wanted European companies to have equal access to all procurement contracts that were available as opposed to Small Medium and Micro Enterprises (SMMEs) attaining preferences. A third issue was competition. The Competition Authorities should be able to act on behalf of foreign investors against domestic monopolies. 

Mr Ramgobin did not believe that the EU would fulfil the tall order that South Africa had because he did not consider that the EU was a benevolent trading or economic partner. There was the view that China was currently feeding off Africa and they knew who fed off Africa previously. The resources of Africa went out to develop another region. Whether this would lead to South-South cooperation or not was a different matter. The EU’s response to India, Brazil and South Africa (IBSA) and China’s response was that IBSA was important. Why was China seeking to enter IBSA and why was the EU attempting to get IBSA to open to free trade relations. He thought the EU considered IBSA a threat because in the final analysis, the EU was facing a formidable international threat with the partnerships of IBSA. The EU would sooner or later lose its pristine supremacy in terms of trade. With the emergence of the Eastern bloc coupled with the resources of Africa, this presented a combined threat to the EU.

Mr Ramgobin mentioned the onerous world trade organisation and customs administration procedures would allow the EU to unilaterally withdraw tariff concessions. If the EU had the capacity to unilaterally withdraw tariff concessions, what was the interpretation thereof or the relevant deduction.

Dr Lutuli commented that it took the EU years to be consolidated. She did not understand why Africa was pushed to resolve their issues. It said a lot about the EU’s opinion towards Africa. Were they just there for the EU to pursue deadlines, were they unable or too weak to tell the EU to back off or was there not enough bargaining power?

Mr Malahlela noted that this was an entrenchment of capitalism internationally. He spoke of the World Trade Organisation (WTO) enabling clause mentioned in the presentation, and Article 31 of SACU. Both showed the fact that to a large extent there was a particular aspect of the EU that was forced upon African countries. He asked if they had the capacity to launch a dispute with the WTO if the clause was contravened during these negotiations, in a way that would halt the type of negotiations that were detrimental.

Deputy Minister Davies replied that they could not. It was an enabling clause and it allowed them to do something if they chose to do so. If they gave away that right on a bilateral basis, they could not go to the WTO and lodge a complaint. However, there has been a Brazilian-led debate in the WTO that criticised the EPAs on that basis and this was supported by South Africa.

The Chairperson asked that in event of a dispute between South Africa and the EU who would be in a position to adjudicate.

Deputy Minister Davies replied that adjudication was one of the issues. If there was a disagreement, there was supposed to be a mediation process where they would be able to nominate mediators. There was a dispute and mediation clause whereby process was created.

The Chairperson mentioned that when there was a discussion between the relevant departments, he noted that South Africa was told that they could not enter into the same agreement with EU as the ACP because they were considered competitors. That meant they were saying that South Africa were their rivals. He believed that the EU treated South Africa with suspicion, therefore the country would benefit given the fact that they might be viewed as a rival.

The Chairperson mentioned that it was indicated in the EPAs that at some stage, the country would be called upon to remove all tariffs on imports. He asked what were the implications on the economy. He noted that the division between the countries had an effect on the ground. He asked what impact did it have on the country’s trade relations with their neighbours. There were a certain amount of ‘red lines’ and if anyone attempted to cross a ‘red line’, that country should hold them off.
 
Ms S Camerer (DA) asked if the Most Favoured Nation (MFN) clause was the biggest reason for South Africa’s not signing the EPA. She asked if there was a downside in refusing to proceed with the EPAs.

Deputy Minister Davies replied that they saw the negotiations process as requiring them as a regional group to cross a number of ‘red lines’. They were traditional issues such as the new generation of commitment and services and other things that cropped up in the interim EPA. They were currently engaged in a process to find out, when they addressed those concerns again and having not signed as South Africa, if they were able to find a basis on which they could become part of a common arrangement in the final EPA that would also apply to the rest of the region. They were not sure at this point whether they would be able to find sufficient reason to sign or not. The indications were a bit mixed as the EU would agree on some issues and on others not. The decisions taken at the end would not be small. If they did not get an agreement on MFN or export taxes they may be faced with a dilemma. There was the risk of signing on a deal that the country thought was bad in order to be in accordance with the neighbours. Alternatively, risk bad relations with the neighbours so as not to sign a bad deal and pursue trade relations with India, Brazil and China.   

The Chairperson mentioned the period of time that the EU would not import South African cheese, he asked the DTI why it was that when South Africa was given three months to sort out the issue by the EU, there were no murmurs of retaliation. He was told South Africa could not take such actions because they did not have standardisation institutions. He asked if South Africa did not have such institutions, and entered into such a huge agreement, was the country not weary of finding themselves in similar situations without protection against such actions.

The Chairperson asked if SADC and SACU had a forum where they could discuss issues to come up with a common position.

Mr Malahlele commented that primarily South Africa’s negotiating capacity between countries was not a problem. The issue was the many concessions that might arise out of the negotiations, particularly when there was a comparison of the EU’s negotiating capacity in terms of what they could offer as a human resources mechanism to negotiate with the countries.

Mr Sithole asked if there was a future for the ACP-EU joint assembly if the EPAs were to become operational and, if not, who would gain if the ACP-EU joint assembly did not survive.

Deputy Minister Davies replied that there was a report on the issue. South Africa was concerned that the regional meeting was a trend toward breaking up the JPA into different regional assemblies. There was a fear that the ACP as a collective should give way for the different configurations. If that were to happen, they would lose quite a lot.

Mr Sithole asked, if Lesotho gained R2.78 billion and was willing to gamble with South Africa’s economy, yet South Africa was not sure when was the time to be firm, when would the time come. 

Deputy Minister Davies replied that it was something that the country would have to face as a whole. South Africa’s contribution was about R33.5 billion and they received R16.4 billion. South Africa received about half of their contribution. It was an agreement, if this organisation did not become something that could be taken forward then those kinds of calculations become important. There was no real money that had come from the EPA process. There had been promises that if there was a plan and a need was identified, there would be some share that was available for aid for trade. In SACU though there would be real payments. If the organisation became dysfunctional those types of calculations would become vital.

Mr D Gamede (Kwazulu-Natal; ANC) commented that the EU was negotiating as a group, while Africa was not. He asked what plans were there to negotiate as one bloc.

Deputy Minister Davies replied that the unevenness of the negotiating capacity was evident by the well-organised technical teams and so forth. The EU had a full-time person that was involved with the negotiations whereas they had ministers that had a myriad of issues that they had to deal with. Many ACP countries were not happy with the outcomes of the trade positions. The whole issue had been cloaked in developmental strategies when in fact, he thought, it was about bargaining over commercial advantage.

Mr Malahlele thanked the presenter for his presentation. He recognised the role of the parliamentary committees and said they had to find a way to synchronise this issue into Parliament’s main agenda.

The Chairperson adjourned the meeting.