The Department of Trade and Industry (dti) briefed the Committee on the Preferential Trade Agreement (PTA or the Agreement) between the Common Market of the South (Mercusor) and the Southern African Customs Union (SACU), which, having been signed by all members of Mercusor and SACU, was now ready for ratification in Parliament. Members asked for clarification on Annex I and II, whether there were review mechanisms in place, what the benefits were for producers and consumers in South Africa and whether the agreement with Mercusor was better than the one which existed between SACU countries. They also sought clarity on the Rule of Origin, whether there was a deadline for signing of the Agreement, whether Cabinet had endorsed the recommendation for the ratification of the PTA, and whether the PTA was likely to divert or create trade for South Africa. They further asked if all product requests were canvassed to establish whether SACU really wanted those products, what the impact of the PTA was on South-South relations and what impact SACU agreements with other countries would have on World Trade Organisation negotiations. They enquired whether the dispute between South Africa and other SACU countries was over and if it would hamper the SACU/Mercusor PTA Agreement. Members resolved to support the ratification of the PTA between Mercusor
The Department then briefed the Committee on the Promotion and Reciprocal Protection of Investment Agreement between the Governments of the Republic of South Africa and the Republic of Zimbabwe. He explained that such bilateral investment agreements sought to protect investment between parties signing the agreement. South Africa had been pursuing a bilateral investment treaty with Zimbabwe since November 2002 and for a number of years was unable to secure agreement on signing by Zimbabwean Ministers. In 2009, Zimbabwe resumed negotiations, and had engaged on Article 11, relating to the Scope of the Agreement, until October 2009. The compromise reached between South Africa and Zimbabwe on Article 11 sought to ensure that the Global Political Agreement, which was an internal Zimbabwean arrangement, leading to the creation of an inclusive government in Zimbabwe which contained an understanding with respect to its Land Reform Programme, was not affected. South African investments in the past and future would be protected with the exception that any South African property which was compulsorily acquired before the Agreement would not be protected. The Minister of Trade and Industry had signed the Agreement in November 2009. Members asked about the political settlement and the Southern African Development Community Tribunal. A proposal to adopt the Agreement was met with a counter-proposal that the relevant Ministers should brief the Committee before considering adoption of the Agreement. A vote followed which resulted in the Agreement being ratified by the Committee.
Preferential Trade Agreement (PTA) between the Common Market of the South (MERCUSOR) and the Southern African Customs Union (SACU): Briefing by Department of Trade and Industry (dti)
Mr Xavier Carim, Deputy Director General, Department of Trade and Industry, said that the Preferential Trade Agreement (PTA or the Agreement) between the Common Market of the South (Mercusor) and the Southern African Customs Union (SACU) was part of South Africa’s long standing commitment to building South-South trade and economic relations with dynamic and rapidly growing economies.
This PTA was unique in that it was the first trade agreement concluded by SACU with other developing countries. Importantly, SACU had also negotiated an agreement with the European Free Trade Association (EFTA) in 2008.
The initiative taken between India, Brazil and South Africa, IBSA, had probably been the best example of the collaborative approach to building South-South relations thus far.
In 2000, a Framework Agreement was signed by the Ministers of Trade in South Africa and Brazil to initiate and explore trade relations with a PTA. A move toward a Free Trade Agreement was expected to follow in the future.
A number of studies and exchanges were undertaken between 2000 and 2004 in order to understand the respective economic requirements. The Agreement which was signed by Ministers at the end of 2004, was accompanied by a Memorandum of Understanding (MoU), which set out a built-in agenda for rules of origin, sanitary and phyto-sanitary issues, and on customs cooperation, as well as trying to expand the list of products to be included in the final agreement.
Rights and obligations of all parties were accompanied by a series of Annexes. Annexes I and II set out the tariff preferences granted to SACU and Mercusor markets, and margins of preference varied between 10 to 100% depending on the product line. Overall there was a balance between what was given and what was obtained. Altogether there were 2 000 product lines. SACU would enjoy preference on 1 000 product lines compared to other trading partners in the Mercusor market and vice versa.
There were additional annexes for Rules of Origin which ensured that the preferential goods were in fact produced in the Mercusor and SACU countries. The Safeguards Annex allowed SACU to respond and close borders or limit imports if there was a threat to local industry due to a surge in imports. The Dispute Settlement Annex set out procedures within a legal framework where disputes may arise. The terms of the Agreement set the basis for any future cooperation work between SACU and Mercusor.
There had been delay in moving ahead with the negotiations due to the need to find a common negotiating approach from both Mercusor (consisting of Argentina, Brazil, Paraguay and Uruguay) and SACU (consisting of Botswana, Lesotho, Namibia, South Africa and Swaziland), and coordinating negotiations between the nine member states. At a technical level, the process was concluded in May 2008. The Agreement was aligned with national legislation and international relations and cooperation in the Department of Justice and was signed by the Mercusor Ministers in December 2008, and by the SACU Ministers in April 2009. It needed to be ratified by all nine provincial legislatures and the National Parliament. It would come into force thirty days after the last ratification.
Mr A Lees (DA, Kwazulu-Natal) said that there was no correlation between Annex I and II and that descriptions of the products were not clearly defined. His concern was that this would lead to misunderstanding in the future. For example, the term ‘horses’ did not stipulate if it referred to live or dead horses.
Mr Carim said that products reflected in some annexes were not reflected in others. In developing a mandate for negotiations, there had been engagement with the National Economic Development and Labour Council (Nedlac), stakeholders, business, and exporters. The Department of Trade and Industry (dti) had invited input from the public and from business through a gazetting process in order to identify South Africa’s export interests in the Mercusor market. A list of approximately 2000 products, whereby South African exporters would benefit from Mercusor, was identified, and the consolidated list of export interests of SACU was exchanged with that of Mercusor. On an analysis of products requested, SACU would give preferences on about two thirds of those requested, and within those two-thirds’ preferences, some would receive 100%, some 50%, some 10% preference and so on. Thus the Annexes would not have identical symmetry.
Ongoing consultations were required through government, business and labour, through Nedlac, and agreement at the SACU level was also required. At the end of the day, SACU aimed to gain improved access to Mercusor markets in exchange for the access to its own markets that Mercusor was seeking. SACU would not open its markets to products such as the Mercusor automobile and sugar industries, where domestic consumption would be at risk of being undermined.
The way in which goods were coded and classified was limited to the corresponding country – and he indicated that this would answer the question as to whether the description of ‘horses’ related to live, dead, or race horses. A large team had oversight on what the actual classifications were.
Mr Lees asked if there were mechanisms in place for regular review of the Agreement.
Mr Carim said there was no agreement with regard to time-bound reviews. However, Articles 32 and 33 provided procedures which allowed any party to review issues to the extent that changes on products such as tariffs could be made. This would require agreement on both sides.
Mr K Sinclair (COPE, Northern Cape) asked what the benefits were for South African producers and consumers.
Mr Carim said that ultimately the PTA provided opportunities for producers and consumers. SACU producers would benefit from additional market access by taking advantage of Mercusor offers of preferential margins, and by increasing their exports. Generally, SACU consumers could benefit if the goods they received from Mercusor were cheaper than goods imported from the rest of the world. In setting out the negotiating mandate, the objective on the one hand was to ensure that SACU did not open itself to damaging competition in the domestic market and on the other hand could maximize the potential to increase exports.
The Chairperson asked if the SACU/ Mercusor PTA was a better agreement than that which existed between the SACU countries themselves.
Mr Carim said that SACU was a better trade arrangement in the sense that around 7 000 goods produced in SACU moved across the borders, whereas with Mercusor, 1 000 products were moved. SACU products moved across borders free of duty charge.
The Chairperson asked what would happen in the interim should South Africa sign the Agreement while other countries did not sign it.
Mr Carim said that the agreement was only effective 30 days after the last country ratified the Agreement. There were no preferences extended either way until the PTA entered into force.
Ms S Chen (DA, Gauteng) asked if there was a deadline for signing of the PTA.
Mr Carim said that no deadline for the PTA had been enforced. It was subjected to domestic procedures which had different Constitutional arrangements. SACU was able to ratify within four months, but Mercusor had more complicated Constitutional procedures and would take closer to a year to complete ratification.
Ms Chen asked if there was a standard mutual understanding with regard to the Rule of Origin.
Mr Carim said that each of the tariffs was bound to a corresponding specific Rule of Origin Certificate before it would be granted preference. Detail was indicated on a line by line basis on each product.
Mr B Mnguni (ANC, Free State) asked what the impact of the PTA was on South-South relations as far as trade was concerned, and what impact SACU agreements with other countries would have on World Trade Organisation (WTO) negotiations.
Mr Carim said that the PTA had a positive impact on South-South trade and relations, and would generate more interest and contribute to a growing trade. Companies anticipating the ratification were already more interested in the Brazilian market and vice versa. The PTA did not have a direct impact on WTO and Doha Round negotiations, as issues in the WTO/Doha Round were not the same as on the bilateral level, but it would add to collaboration, and strengthen the common approach with Mercusor in relation to the WTO/Doha Round.
Mr F Adams (ANC, Western Cape) asked if the dispute between South Africa and other SACU countries was over, and if it had the potential to hamper the SACU/Mercusor Agreement.
Mr Carim believed that the question related to the Economic Partnership Agreements (EPA) entered into between some members of SACU and the European Union (EU) and whether these EPAs had the potential to hamper the PTA. Problems were expected where the EPAs were entered into before the PTA, but they would otherwise, in principle, not affect the Agreement. If the PTA came into force after the EPAs, in the case where any tariff preference given in the PTA was better than that given in terms of the EPA, then the EPA would have to be extended. In essence, there was a race in tariff preference and the EPA continued to be a problem. The EU had not yet accepted proposals from South Africa and the solutions were not yet at hand. Ordinarily, most agreements were independent of one another, but there were some specific direct relations between EPA and this PTA.
Mr Adams asked if Cabinet had given consent for Parliament to go ahead with ratification as there was not visible documentation in that regard.
Mr Carim said that Cabinet had endorsed a recommendation for the PTA’s ratification in Parliament earlier in the year.
The Chairperson asked if the India-Brazil-South Africa (IBSA) agreement and this PTA would be used interchangeably, or if they became the same agreement.
Mr Carim said that there was a relationship between the two agreements in the sense that building of trade was on both agendas. In the past, at IBSA meetings, SACU and Mercusor members would discuss their agreement issues, but in effect these negotiations were more technical and specific. IBSA dealt with much broader issues.
The Chairperson asked if the PTA would divert or create trade for South Africa.
Mr Carim said that there would be elements of both. There were limits for expansion of trade within SACU markets but large export advantages and opportunities for expansion of exports to Brazil and Argentina.
Mr Lees said that he was concerned about asbestos import products which were being encouraged from Mercusor. He asked if all product requests were canvassed to establish whether SACU really wanted all the products.
Mr Carim said that each request for preferential trade, including asbestos, was canvassed and was required to meet standards in terms of South African safety and human health standards.
Mr Sinclair said that South Africa and Brazil competed with their iron ore products and asked what the status quo was in the PTA in that regard.
Mr Carim said that he did not have the information regarding iron ore offhand, but that SACU did indeed compete against Mercusor with iron ore products. However, there were specific products produced in the ferrous industry and one would need to look at the specific products offered.
Members agreed to support the ratification of the PTA between Mercusor and SACU.
The Chairperson noted that the Committee’s support of the PTA would be reflected in the ATC the following day.
Promotion and Reciprocal Protection of Investment Agreement between the Governments of the Republic of South Africa and the Republic of Zimbabwe: dti briefing
Mr Carim explained that investment agreements were essentially bilateral investment treaties which sought to protect investment between the parties who signed the agreement. The enhanced security set out in these treaties encouraged investment and protected investors from risk of loss, expropriation and nationalisation.
South Africa had considered it important to conclude a bilateral treaty with Zimbabwe to protect South African companies who had invested in the past, and who would invest in the future in Zimbabwe, and in order to encourage new investment into Zimbabwe and support economic reconstruction and development.
Historically Zimbabwe was one of South Africa’s most important trade partners in Africa before the economic decline. If its economy began to grow there would be enormous benefits to South Africa from a commercial and regional economical development point of view.
South Africa had been pursuing a bilateral investment treaty with Zimbabwe since November 2002, when, at a bilateral meeting, the Joint Permanent Commission for Cooperation at a Ministerial level agreed to launch such negotiations. In December 2003, an agreement was concluded. For a number of years, South Africa was unable to secure agreement on the signing by Zimbabwean ministers. Finally, in 2009, Zimbabwe agreed to resume negotiations. Article 11 ‘Scope of the Agreement’ was the subject of engagement from March 2009 until conclusion in October 2009. In essence, the compromise which was reached between South Africa and Zimbabwe on Article 11 sought to ensure that the Global Political Agreement, which was an internal Zimbabwean arrangement that led to the creation of an inclusive government in Zimbabwe and that contained an understanding with respect to its Land Reform Programme, was not affected.
Mr Carim read out Article 11, as follows: “This Agreement shall apply to all investments, whether made before or after the date of entry into force of this Agreement, but shall not apply to any property right or interest compulsorily acquired by either Party in its own territory before the entry into force of this Agreement.”
In summary, all South African investments in the past and future would be protected, with the exception that any South African property which was compulsorily acquired before the Agreement would not be protected.
In November 2009, the Minister of Trade and Industry, Mr RH Davies, had signed the Agreement alongside his counterpart in Harare during a Convention that also included business investors who had a keen interest in investment in Zimbabwe.
As with the SACU/Mercusor PTA Agreement, both Parliaments would need to ratify the Agreement. Thirty days after the last ratification, the Agreement would come into force.
Mr Sinclair said that the memorandum had referred to ‘political settlement’ but he believed that there was not as much political settlement as there was supposed to be. This created a challenge to the framework.
Mr Carim said that Members should consider whether or not South African companies and investors would be better of with or without the Agreement. The Agreement would offer additional protection where this did not already exist, and it was enforceable under international arbitration. It set out what constituted an investment, what constituted an investor, the type of treatment an investor could expect, what compensation could be expected for losses and in the case of expropriation, the transfers of money required for compensation and losses. It further set out the manner in which to settle disputes, which included resort to international arbitration at the International Centre for Settlement of Investment Disputes in Washington DC.
Mr Sinclair asked what the status of the rulings by the Southern African Development Community (SADC) and South African Courts were with regard to the claims against the Zimbabwe government, as he believed that Article 11 may negate the SADC Tribunal.
Mr Carim said that this question had been addressed in the North Gauteng Court at the end of 2009. Agriforum had brought a case to court indicating that they had concern that the Agreement would have implications on the SADC Tribunal. The court indicated that the SADC Tribunal findings were additional to the Agreement. Thus, there was no negating, but rather provision of an additional layer of protection. Any claimant may decide to pursue under this Agreement or the SADC Tribunal, should the Agreement come into force.
The Von Abo case in the South African courts was presently sub judice.
Mr Lees said that he believed that consideration of the Agreement was premature. It should rather be considered when a democratically elected Zimbabwean government was in place. Since this was a government to government agreement, the South African government could not protect its citizens’ property rights prior to the Agreement and a citizen would have to explore other avenues for assistance. In this regard, he believed that Article 11 negated citizens’ rights. He apologised for his political stance in the debate and acknowledged that Mr Carim could not be required to comment on his statement.
Mr M Maine (ANC, North West) said that since the government had signed the agreement, follow up questions should not be political. The Committee should decide on whether to pass this Agreement or not. There were political platforms for Parliament to engage and those avenues should be used.
Mr A Nyambi (ANC, Mpumalanga) suggested that the Agreement be adopted.
Mr Sinclair said that he was a politician and was paid by the taxpayer to speak politics and therefore was not apologetic about doing so. He counter-proposed that the relevant Ministers should brief the Committee before considering adoption of the Agreement.
The Chairperson said that both the proposal and counter-proposal needed to be seconded.
Mr Nyambi’s proposal was seconded by Ms Dikgale. Mr Sinclair’s proposal was seconded by Mr Lees.
The Chairperson said that in the case of two opposing proposals, a vote would decide.
Mr Sinclair asked if the National Assembly had been briefed on the Agreement.
Mr Maine said that as a point of order, the NCOP had nothing to do with the National Assembly decision.
The Chairperson requested that Members vote. Six members voted to ratify the Agreement and three members voted to be briefed by the Minister before ratification.
Consideration and Adoption of the Committee’s report on the KwaZulu Natal Oversight Visit from 2 to 6 November 2009
The Chairperson proposed that, since some Members had not read through the Report, consideration and adoption of that Report should be postponed to the following week.
Mr Maine moved for adoption of the report.
Mr Lees said that one of the oversight meetings appeared to be omitted.
Mr Sinclair said that recommendations by the Committee on page 15 had to be completed by the Committee.
A Member suggested that each Member should formulate recommendations to be discussed in the following week.
The Committee Secretary said that the full report was too large and some information had been omitted. The full report could be made available.
Mr Nyambi agreed that Members should work on the recommendations and discuss them the following week.
The Chairperson concluded that the Report would be discussed the following week.
The meeting was adjourned.
- Promotion and Reciprocal Protection of Investment Agreement between the Governments of the RSA & Zimbabwe
- Preferential Trade Agreement between the Southern Common Market (Mercosur) and the Southern African Customs Union (Sacu)
- Explanatory Memorandum: Preferential Trade Agreement (PTA) between the Common Market of South (MERCUSOR) and the Southern Africa
- Explanatory Memorandum Prepared by the International Trade and Economic Development Division (ITED)
- We don't have attendance info for this committee meeting
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