Intra-Africa Trade & Tripartite Free Trade Agreements Workshop, Committee Report adoption

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Trade and Industry

15 May 2012
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee firstly considered and adopted its Report on the Budget Vote and Strategic Plan of the Department of Trade and Industry (dti). Members considered and debated recommendations in relation to whether the Industrial Policy Action Plan needed to be more focused, as well as whether South Africa could properly be referred to as a nation of adapters rather than of inventors, which led to the recommendation that it should rather focus on what it was doing successfully at the moment. Members felt that more substantive debate was warranted on these issues at another meeting, as well as making mention of them in the Report. They further debated the role of the Companies and Intellectual Property Commission, and noted the need for more joint projects on energy, climate change and food security, as well as greater collaboration in science and technology and more investments in health and biotechnology.

A Workshop on the Tripartite Free Trade Area was facilitated by the Trade Law Centre (TRALAC), with another presentation by Business Unity South Africa (BUSA). The paradigm of regional integration in Africa and the various phases in the establishment of a free trade area were outlined. It was noted that the purpose of the Tripartite Free Trade Area was to address the problems of overlapping membership of regional economic communities, and to address consolidation of the regional economic communities on the Continent. The new approach was aimed at trade facilitation and the elimination of non-tariff barriers. A Summit held in June 2011 had given a mandate to negotiate, approved the establishment of the TFTA and now the Tripartite Trade Negotiation Forum had been formally constituted and agreed on its work plan. The first phase of negotiations would run from March 2012, for 36 months, and it was agreed that the Southern African Customs Union SACU and East African Community would negotiate as blocs. This first phase would consider tariff liberalisation, rules of origin, dispute resolution, customs procedure and simplification of customs documentation, transit procedures, non-tariff barriers, trade remedies, technical barriers to trade and sanitary and phyto-sanitary measures, with movement of persons being negotiated on a parallel and separate track. The second phase was the built-in agenda which included trade in services, intellectual property rights, competition policy and trade development and competitiveness. The institutional framework was described, as well as the working text, with a main agreement and 14 annexes covering the topics outlined. The Department of Trade and Industry confirmed that it was working on the development integration agenda, and that many challenges lay not with tariffs but with supply and production capacity.

Business Unity South Africa agreed that the African agenda was crucial to South Africa’s South-South focus, and highlighted the current low volumes of intra-Africa trade and investment, and the potential for growth. Increasing intra-Africa trade should, however, be located within a broader imperative to improve Africa’s global trade performance. BUSA noted that trade liberalisation alone did not guarantee an increase in intra-regional trade, and set out the other factors to be considered. Implementation should be approached from a programmatic viewpoint. It was vital to consider unique circumstances for each country, as well as the internal challenges and structural differences between the regional economic communities.

Members asked if there had been any research on the projected loss in tariff revenue, seen against projected increases in revenue from increased trade. They noted the importance of remaining updated on progress of negotiations and of ensuring succession planning for the negotiation team.

Meeting report

Committee Report on Strategic Plans and budget of Department of Trade and Industry
The Chairperson noted that comments had been received from ANC, DA and COPE Members in relation to the Committee’s Report on the Strategic Plans and budget of the Department of Trade and Industry (the Report). She suggested that at the outset, Members should deal with the conclusion of the Report and the recommendations of the Committee.

She asked members to discuss the request for an increased allocation with respect to the Industrial Policy Action Plan (IPAP).

Mr B Radebe (ANC) said that the ANC did not agree with the suggestion from the DA that the IPAP was a too diffuse and dissipated effort. IPAP was a programme specifically used by the government to industrialise South Africa, and was intended to address the low industrialisation during the imposition of sanctions. He thought that it was not diffuse or dissipated, but in fact added value to the system.

The Chairperson clarified that the DA’s position was that the IPAP should be more specific and should be informed by the fact that South Africa was a nation of adapters, and not inventors. She asked if Mr Radebe’s comment related to the first or second part of the DA’s recommendation.

Mr N Gcwabaza (ANC) said that there was a lot of research and innovation done by the Department of Science and Technology (DST), particularly on the IPAP and he did not think that the view of the DA was fair comment. In relation to the recommendation of the DA that IPAP should rather focus on comparative advantage, Mr Gcwabaza said that IPAP2 had identified key sectors, which had the potential of manufacturing and of creating the massive jobs needed by the economy. This enabled South Africa then to look at the specific areas of comparative advantage. IPAP could not just deal loosely on comparative advantage if it had not first covered a broad range of issues, from which specific areas of comparative advantage would then be identified. He repeated that he did not believe the DA’s statement was properly structured, nor acceptable.

Mr X Mabaso (ANC) said that South Africa was exporting raw materials to other countries and the challenge lay in adding value within South Africa, so that it could also export finished products. South Africa was a manufacturing country, though it was a matter of argument to what degree this was so. He also felt that the DA’s suggestion was inappropriate and failed to add value to the debate. He suggested that this statement from the DA be deleted from the Report.

Mr W James (DA) said that Japan had five areas for strategic planning while South Africa had nineteen, and this clearly showed that South Africa was trying to focus on many areas. Critics in Japan had even asked government to drop from focusing on five, to only three strategic areas. He pointed out that industrial planning was most successful when governments had planning expertise in a particular area. The first point which informed the DA recommendation was that South Africa had nineteen strategic planning areas, and experts in the field felt this was ineffective. This then led to the second point, that South Africa needed to focus on a few major areas where it already had a comparative advantage, and should be building in areas where it had existing expertise.

Mr James insisted that South Africa was a nation of adapters and not inventors. He said that to invent something meant to find a completely and utterly new way of doing something. A cut jewel was not a South African invention, but an adaptation of an existing invention. There were, in fact, very few totally new South African inventions. He had meant no disrespect by using the term “nation of adapters”. If a nation was good at adapting, then it should do more along this path, and not to try to re-invent what had already been invented elsewhere.

The Chairperson had a different take on the issue of South Africa being a nation of adapters, and not inventors. If one looked back at what South Africa had done since 1910, it was clear that South Africa was a nation of inventers. However, the problem was that these inventions had not been properly marketed, with enough follow up and funding to pursue the ideas. Examples included the huge military industry, which had invented a number of things. She felt that the approach on the comparative advantage had merit, but she thought that the word “dissipated” was unsuitable. She suggested that perhaps this should be worded that IPAP should be more focused on the comparative advantages that South Africa had, to accelerate industrialisation. The IPAP needed to be more finely tuned.

Mr Mabaso agreed with the Chairperson, but suggested that a sentence be included in the Report that said that, in order to succeed in manufacturing, there should be attempts to encourage South Africa’s learners to become manufacturers.

Mr Radebe said that focusing only on the comparative advantage could reduce opportunities to invent and innovate. South Korea did not have a lot of resources but currently had managed to create a strong economy, despite the fact that resources had to be sourced from other countries. This was not done based on comparative advantage. Innovation also had to be considered, creating something out of nothing. Japan had to focus on five areas because it had far fewer resources than South Africa, and he pointed out that direct comparisons were not always helpful.

Ms S van der Merwe (ANC) said that the Report dealt with the Committee’s deliberations on the budget. The matters which were being raised were very important, and could be debated later. However, because they were not raised in the deliberations, there was no reason to include them in the Report itself. She suggested that these matters be set aside for later debate and report.

Mr James agreed to the recommendation from Ms van der Merwe.

Mr Radebe felt that the issues under discussion were crucial to the topics raised, and therefore had to be included in the report.

The Chairperson said that the issues actually did come up during the presentation, and it was thus appropriate for them to be included in the Report.

Mr G Hill-Lewis (DA) commented that there was poor choice of wording that made reference to the role of the Companies and Intellectual Property Commission (CIPC) in “restoring South Africa’s credibility”, as it was not the mandate of the CIPC to restore credibility around the registration of companies.

Mr Radebe said that the use of the term “credibility” was too broad and should be more narrowly defined.

Mr Mabaso agreed that that the core mandate of the CIPC was not to restore South Africa’s credibility, but that its operations in fact resulted in restoration of credibility.

Ms van der Merwe said that the Committee had urged the Department of Trade and Industry (dti) to improve the implementation of integration in the region. 

Mr James said that the proposal by Ms van de Merwe was too weak. There should be a focus on projects, and just not integration initiatives. The objective was to reduce bureaucratic red-tape, and the emphasis was on effectiveness of projects.

The Chairperson noted that the recommendation from the DA commented on lack of joint projects on energy, climate change and food security.

Mr James clarified that the DA meant to say that these projects were not sufficient.

The Chairperson said that there was need for collaboration in science and technology and for investments in health and biotechnology.

The Chairperson asked Members now to consider the rest of the Report. Members went through the Report, page by page, and made corrections, where necessary, to style, format and spelling or grammar. The figures and percentages were confirmed.

Members adopted the Report, with the amendments.

The Chairperson noted that the Committee still had to take a decision as to where the letters it had received would be referred.

Intra-Africa Trade & Tripartite Free Trade Agreements Workshop
Trade Law Centre (TRALAC) presentation
Ms Trudi Hartzenberg, Executive Director of the Trade Law Centre (TRALAC), said she would facilitate and present the workshop. She noted that TRALAC’s presentation would include input on behalf of Trade Mark Southern Africa. She apologised that this entity was unable to be represented, as it was attending deliberations on the Tripartite Free Trade Area (T-FTA) in Nairobi.

Ms Hartzenberg gave an overview of the T-FTA and on regional integration in Africa. There was general concern as to what kind of paradigm had been adopted by African countries to integrate their economies. She noted that “a paradigm” in this context meant a linear model of integration. The African paradigm of regional integration had five steps, which were:
1: Establishing a Free Trade Area (FTA), wherein member states agree to liberalise trade among themselves, with the aim of duty-free trade, while maintaining their own trade policies and tariff regimes towards external partners.
2: Establishing a Customs Union, where member states had reduced tariffs amongst themselves and adopted a common external tariff, while establishing a common customs territory.
3: Creating a Common Market with free movement of factors of production such as goods, capital and labour. Services would be included in the liberalisation programme.
4: Establishing a Monetary Union with a common currency and monetary policy.
5: Establishing a Political Union.

The T-FTA was an extremely important initiative in the Pan-African integration agenda. According to the Abuja Treaty of 1991, a number of regional bodies were to be established and consolidated and eventually, the entire continent was to be integrated by the building of these blocks. The T-FTA was an initiative which would take the Pan- African integration agenda further. The 26 member states of the East African Community (EAC), the Southern African Development Community (SADC) and the Common Market for East and Southern Africa (COMESA) agreed, in October 2008, to establish a T-FTA. This T-FTA was going to integrate effectively with the East and Southern African economies. It was an ambitious programme which was likely to involve long negotiations.

The purpose of the T-FTA was to address the problems of overlapping membership of regional economic communities. Much work was still to be done to consolidate the regional economic communities on the Continent. The T-FTA would go a long way to enhancing the desired economic consolidation.

She noted that T-FTA had three pillars, of market integration, infrastructure development and industralisation.

Ms Hartzenberg then outlined the progress of the T-FTA. The first phase of the negotiations began in March 2012, with a projected timeframe of 36 months. During this first phase, there would be trade in goods as well as movement of business personnel. The plan was that the Southern African Customs Union (SACU) and EAC would negotiate as blocs, while the other countries were to look at their specific interests and sensitive products.

The new approach presented by the T-FTA involved trade facilitation and the elimination of non-tariff barriers. Trade Facilitation had a broad agenda, which consisted of border management, customs procedures, standard matters and infrastructure development programmes, such as the North-South Corridor. The elimination of non-tariff barriers – described as barriers to trade other than import or export duties - involved the reduction of custom procedures, administrative requirements, technical standards and lack of infrastructure.

The Second Tripartite Summit, which was held in June 2011, gave a mandate to negotiate. It approved the roadmap for establishing the TFTA and it was now in the final stages of implementing the preparatory phase. The Tripartite Trade Negotiation Forum (TTNF) had been formally constituted, had met twice in preparatory sessions, and agreed on its work plan for negotiating trade in goods.

There were two phases of the negotiations. The first phase was on trade in goods. This included tariff liberalisation, rules of origin, dispute resolution, customs procedure and simplification of customs documentation, transit procedures, non-tariff barriers, trade remedies, technical barriers to trade and sanitary and phyto-sanitary measures. The movement of persons was going to be negotiated on a parallel and separate track. The second phase was the built-in agenda which included trade in services, intellectual property rights, competition policy and trade development and competitiveness.

The institutional framework for the negotiations comprised the TTNF, which was supported by Technical Working Groups (TWGs), as well as a Tripartite Committee of Senior Officials. Further up the hierarchy was the Tripartite Sectoral Ministerial Committees, the Tripartite Council of Ministers and the Tripartite Summit of Heads of State and Government. A separate TWG, outside the TTNF, was to be established to negotiate movement of business persons. Technical and administrative support would be provided by a Tripartite Task Force.

The Tripartite Task Force drafted a working text, comprising of main agreements and 14 annexes. These 14 annexes covered trade liberalisation, trade remedies, rules of origin, non-tariff barriers, customs cooperation on procedures, simplification and harmonisation of customs documentation and procedures, transit trade and transit facilities, competition policy and consumer protection. They also covered standardisation, metrology, conformity assessment and accreditation, sanitary and phyto-sanitary measures, dispute settlement mechanisms, intellectual property rights, movement of business persons and trade development and competitiveness.

Ms Hartzenberg said that time did not permit her to go into detail on all these annexes. Parliament’s role was emphasised in that, after the negotiations, there must be signing of the TFTA Agreement, followed by  ratification and the accession to the Agreement.

Discussion
Ms van der Merwe said that the Committee should take steps to ensure that it remained up to date with the progress of the negotiations. She asked for a list of the issues being discussed and finalised in each phase. She also asked who was being trained to take over from the current negotiators.

Ms Hartzenberg said that TRALAC was going to provide a list of the issues in the first negotiating phase. The continuity of the capacity of the negotiation team and succession planning was a critical issue that needed to be considered by the dti.

Ms Xolelwa Mlumbi-Peter, Chief Director, Department of Trade and Industry, confirmed that, in line with this presentation, the dti was working on the development integration agenda. Most of the challenges faced by member states in the region were not around tariffs but were on the supply side and productive capacity. Dti’s approach to the TFTA was to look at a trade integration agenda that combined both good infrastructure development and industrial development.

Business Unity South Africa briefing
Ms Cynthia Chikura, Acting Director, BUSA, highlighted that South African business considered that the African agenda was crucial to South Africa’s South-South focus. Considering the fact that the volumes of intra-Africa trade and investment were low, there was definite potential for growth. She noted that expanding the volume of trade would continue to sustain economic growth and development, enhance capacity, and strengthen the ability of African countries to compete on the global market.

Africa’s share of global trade was very low, and increasing intra-Africa trade should still be located within a broader imperative to improve Africa’s global trade performance. The major issues raised by Ms Chikura included the matters beyond tariff liberalisation, implementation issues, the TFTA and the capacity to trade (see attached presentation for full details).

In relation to addressing of issues beyond trade, Ms Chikura noted that trade liberalisation alone did not guarantee an increase in intra-regional trade. This had to be considered alongside issues such as trade facilitation, strengthening of regional institutions, strengthening the legal infrastructure and the rule of law, individual cohesive policy adjustments and regulatory harmonisation.

She stated that implementation issues had to be approached from a programmatic viewpoint. Each regional economic community had to be considered as a nucleus on its own. Examples of in-process initiatives for facilitating intra-Africa trade included a tripartite NTB reporting mechanism, infrastructure projects and the institutionalisation of private sector consultation.

Ms Chikura said that tariff liberalisation under the TFTA was going to provide preferential access, for each member of the TFTA, to 25 other countries with a combined population of over 550 million. The main issue was whether the TFTA was going to increase overall intra-Africa trade and mutually benefit most of its members. Unique circumstances facing each country, such as policy priorities and differing abilities to adjust, all affected the capacity to trade, and had to be taken into account. She added that other issues that needed to be considered included the internal challenges within the RECs, structural differences between the different RECs and the cohesive policy adjustments.

Discussion
Mr Hill-Lewis asked if there had been any studies or research done with regard to the projected loss in tariff revenue, seen against projected increases in revenue from increased trade.

Ms Chikura said that a few studies had been done, but they related to particular countries, such as Malawi.

The meeting was adjourned.

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