Status of the negotiations in respect of the Tripartite Free Trade Agreement, SACU-India Preferential Trade Agreement and the EU-SADC Economic Partnership Agreements

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Trade and Industry

12 February 2013
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Deputy Director-General: International Trade and Economic Development of the Department of Trade and Industry briefed the Committee on the status of the negotiations in respect of the Tripartite Free Trade Agreement, the Southern African Customs Union-India Preferential Trade Agreement and the Southern African Development Community-European Union Economic Partnership Agreement.

The Tripartite Free Trade Agreement involved 26 countries.  Negotiations had commenced in 2011.  Infrastructure and regional industrial development projects focused on the North-South Corridor.  Projects for rail, border posts and port development had been identified.  The Department undertook to provide a written response to the Committee on the source of funding for these projects.  Progress had been slow, due to the complexities and the number of countries involved in the agreement.  Certain basic principles had been agreed and market access offers and requests and texts were being developed.  The key challenge was reaching agreement on the rules of origin for benefits to accrue to members of the agreement rather than to third parties.  A summit and meeting of the Ministers to assess progress would be held during 2013.

Negotiations on the Southern African Customs Union-India Preferential Trade Agreement had commenced in 2007.  Delays were experienced in getting agreement on common trade and tariff data and in preparing offers.  Progress was made on the legal texts of the main agreement, safeguards and dispute settlement provisions.  Market access requests were exchanged in 2011 but concerns had been raised that certain requests from India were in the sensitive clothing sector.  Ministers had met during 2013 and had urged the finalisation of the negotiations.  The following engagement would be held before June 2013.

South Africa and the European Union had a Trade Development and Cooperation Agreement in place but participated in the Southern African Development Community-European Union Economic Partnership Agreement as a member of SADC.  An interim agreement came into effect in 2007 but was rejected by South Africa, Namibia and Angola as unfair.  Work had been done since 2007 to attempt to correct the interim agreement.  Progress was being made but challenges remained.  An agreement on trade in fish products had been concluded.  The current focus was on an exchange of tariff concessions in agricultural products.  South Africa had conceded certain geographic indications in exchange for improved access for agricultural products.  A major area of concern was the unilateral announcement by the European Union that the Economic Partnership Agreement had to be in force by 2014 or the preferences granted to SADC countries would lapse.  This action placed pressure on the SADC countries, which were not consulted on the matter and would suffer economic losses as a result.  A counter-proposal would be submitted to extend the deadline to 2016.  South Africa, Namibia and Botswana would be removed from the EU General System of Preferences scheme in 2014 and the benefits for Swaziland would be reduced.  Another area of concern was the impact of the agreement on the continental integration agenda.

Members asked questions about the fluctuations in the trade data between South Africa and India; the disagreements over the Most Favoured Nation clause in the EU agreement, the General System of Preferences scheme; the interaction between South Africa and other African countries and the payment of subsidies by the EU to producers of products exported to South Africa.

Members expressed concern over the dissatisfaction of the United States of America that benefits granted to the EU had not been extended to the USA.  The USA had threatened to remove South Africa from the Africa Growth and Opportunities Act.  The Committee would raise the matter with the minister of Trade and Industry during the meeting scheduled for 15 February 2013.

Meeting report

The Committee Secretary noted apologies from Mr G Hill-Lewis (DA) and Dr W James (DA).

Briefing by the Department of Trade and Industry (DTI) on the status of the negotiations in respect of the Tripartite Free Trade Agreement (FTA), the SACU-India Preferential Trade Agreement (PTA) and the SADC-EU Economic Partnership Agreement (EPA)
Mr Xavier Carim, Deputy Director-General: International Trade and Economic Development, DTI presented the briefing to the Committee (see attached document).

The briefing included a summary of the key policy parameters applicable to negotiations on trade agreements.

The Tripartite FTA negotiations commenced in June 2011 and focused on cross-border infrastructure and regional development of the North-South corridor.  Projects for rail, border posts and port development had been identified and studies would be undertaken on industrial development projects.  The Tripartite FTA involved 26 countries and would form the basis for an FTA for the African continent.  To date, five negotiating sessions had been held but progress had been slow due to the complexities and number of countries involved.  A key challenge was reaching consensus on the rules of origin so that benefits would accrue to the Tripartite FTA partners rather than third party countries.  The next official engagement was scheduled for March 2013.  A summit and meetings of Ministers would take place during 2013 as well.  The deadline for implementation of the FTA was June 2014 but this date might be optimistic.

The Southern African Customs Union (SACU)-India PTA negotiations commenced in 2007.  To date, six negotiating sessions had been held.  Delays were experienced in getting agreement on common trade and tariff data and in preparing offers but progress had been made on the legal texts of the main agreement, safeguards (trade remedies) and dispute settlement provisions.  Market access requests were exchanged in December 2011and the making of a market access offer was in progress.  Concerns were raised that India’s market access requests were in sensitive sectors (e.g. clothing).  Ministers had met during January 2013 and the outcome was that the negotiation process was taking too long and needed to be finalised as soon as possible.  Consideration was being given to postponing the tariff discussions for a period.  Data from the South African Revenue Services (SARS) on the trade between South Africa and India between 2008 and 2011 was provided.  The next engagement would take place by June 2013.

South Africa had a Trade Development and Cooperation Agreement (TDCA) with the European Union (EU) in place but participated in the SADC-EU EPA as a member of SADC.  The TDCA was used as a basis to build a common regional EPA with the EU.  The process commenced in 2005.  South Africa, Namibia and Angola felt that the interim EPA introduced in 2007 was unfair and refused to sign the agreement.  Some progress had been made in negotiating a more equitable agreement but challenges remained.  The current focus was on the exchange of tariff concessions for agricultural products.  In 2011, South Africa had made a major concession regarding geographic indicators for EU wine and spirit products in exchange for improved access for agricultural products.  Agreement had been reached on trade in fish products.  Progress was being made on rules of origin for clothing products.  Agreement in principle had been reached on certain legal provisions, particularly those provisions concerning the definition of ‘parties’ and the ‘most favoured nation’ (MFN) clause.  Engagement on export taxes and safeguards for agricultural products was ongoing.

An area of concern was the unilateral announcement by the EU that the EPA must be in force by 2014 or the preferences would lapse.  Enforcement of the announcement would result in serious financial losses being suffered by the African countries.  A counter-proposal had been made to extend the implementation date to 2016.  South Africa, Namibia and Botswana would be removed from the EU General System of Preferences (GSP) scheme in 2014 and the benefits for Swaziland would be reduced.  This placed pressure on those African countries that had not concluded agreements with the EU.  Another area of concern was the impact of EPA’s on the African continental integration agenda.

Discussion
The Chairperson thanked Mr Carim for the briefing.

Ms S Van der Merwe (ANC) asked what the reasons were for the year-on-year fluctuations in the trade data between India and South Africa.  She asked how the disagreements on the MFN clause were resolved.  It would appear that the EU was putting undue pressure on the African countries to conclude the agreements.  The smaller countries had much to lose and were being held over a barrel.  She asked for more details of the GSP scheme.  She asked for more information on the engagement with other regions on the African continent and how the various regions interacted with each other.

Mr B Radebe (ANC) asked what strategy the DTI applied to counteract ‘bullying tactics’ being used against the smaller countries in the region.  He asked what progress had been made to address the concerns over the EU continuing to subsidise farmers exporting agricultural products to South Africa.  He asked how the infrastructure projects that had been identified for the Tripartite FTA would be funded.

Mr M Oriani-Ambrosini (IFP) had difficulty in understanding the issues around the MFN clause.  He understood from the briefing that agreement on the MFN clause had been reached.  He understood that South Africa had granted MFN status to EU countries but had not been given the same status in return.  He wanted to know in detail what the rationale was for granting MFN status to a country.  The United States of America (USA) was extremely concerned that MFN status had been granted to the EU but not to the USA and had threatened not to renew the Africa Growth and Opportunities Act (AGOA) with regard to South Africa.  He wanted to know why South Africa had a more favourable deal with the EU than with the USA.

The Chairperson asked for more information on the negotiations regarding the EU EPA.  Agricultural and clothing products were sensitive areas and had been an ongoing issue.  South Africa had made major concessions in return for improved access for agricultural products.  She wanted to know if the improved access was limited to fish products.  She asked for clarity on the difference in the methods used by India and South Africa to calculate the trade deficit and surplus data.

Mr Carim explained that during the final interim EPA negotiations in 2007, the European Commission had inserted a provision into the MFN clause to the effect that any advantage granted by an ACP country in the future to another trading partner was automatically extended to the EU.  The rationale was that the ACP countries had been granted duty free/quota free access across the board and therefore enjoyed the best possible advantage available in the EU market.  However, South Africa was not granted duty free/quota free access and had to negotiate its own reciprocal tariff agreements with the EU.  The issue was that South Africa was therefore dealt with differently than the other SACU member countries and the provision was not implementable.  During meetings with the EU held in 2011, the proposal was put forward that if a more advantageous agreement was made by SACU with another country, the EU would be consulted but the benefit would not automatically be extended.  South Africa was under the impression that the proposal was agreed to in principle by the EU but a written agreement had not yet been received.

All internal processes needed to have already been approved by the SADC member countries in order for the deadline of 2014 for the finalisation of the EPA to be met.  South Africa intended to lodge a protest as the EU had made a unilateral decision and did not consult with the partners to the agreement.  The cut-off date appeared to be arbitrary and the rationale for the reason had not been given.  Other African countries had similar complaints with the EU.  The issue would be raised by the South African Minister of Trade and Industry during the forthcoming engagement with the EU.

A recent example of the EU continuing to pay subsidies to producers despite an agreement to the contrary being in place was the so-called ‘Cheese Agreement’ (see report on the meeting of the Committee on 29 January 2013).

Mr Oriani-Ambrosini understood that the subsidy was applicable to the milk produced and it was not clear how it was applied to the cheese produced from the milk.

Mr Carim agreed that the granting of concessions to the EU was difficult.  It was necessary to assess the impact of the concession on the domestic market.  He did not have the expertise to respond to the question about the source of funding for the North-South Corridor projects but undertook to ensure that a written response was provided to the Committee.  He understood that there were multiple sources of funding available and that the Office of the President and the Department of International Relations and Cooperation (DIRCO) were also involved.

A decision to remove South Africa from AGOA had not been taken but he was aware that the question of whether or not AGOA should continue was under debate in the USA.  South Africa’s position was that the EPA was an agreement between African countries and the EU and that it would not be detrimental to the USA.  The USA felt that preferential benefits were granted to the EU and should have been granted to the USA as well.  Two potential remedies were to either drop tariffs unilaterally or to enter into an FTA with the USA.  South Africa had attempted to negotiate an FTA with the USA for the last five years, with no success.  A request from the USA to South Africa to negotiate and FTA had not been forthcoming.  South Africa had decided to build on and strengthen the AGOA framework instead.  If South Africa was removed from AGOA, there would be a detrimental knock-on effect on the other countries involved.

The fluctuations in the trade data with India were influenced by the economic downturn experienced since 2008.  The trade surpluses in 2010 and 2011 could be attributed to increased exports of gold and iron ore to India.  The Indian economy also performed better than the South African economy.  There were differences in the methods used by various countries to determine trade surpluses and deficits.  For example, South Africa valued its trade as ‘free on board’ whilst other countries included the cost of freight and insurance.  A product (e.g. gold) exported by South Africa to country A could be re-exported to country B.  South Africa would calculate the value of the gold exported to country A but India calculated the value of the gold as being imported from South Africa (not country B).

The agreement on the fish products was a separate matter and was concluded four years earlier.  The agreement could only be implemented once overall agreement had been reached with the trading partners.  In return for geographic indications concessions for EU products, the names of South African products would be protected in Europe.

Mr Oriani-Ambrosini was not satisfied with the response regarding the failure to extend advantages granted to the EU to the USA.  He pointed out that the USA was extremely unhappy about the situation.  He understood that the discussion in Congress had been about the granting of MFN status to the USA.  He suggested that the Committee informed itself about the matter.

The Chairperson asked for a detailed written response from the DTI on the AGOA issue.  She agreed that the Committee needed to concern itself with the matter.

Mr G McIntosh (COPE) had recently returned from the USA and informed the Committee that AGOA was regarded as a major issue in that country.

Mr Radebe asked for information on the trade agreement with Cuba.  He wanted to know what progress had been made in the appointment of a new Director-General of the World Trade Organisation (WTO).

Mr G Selau (ANC) asked what factors were preventing the finalisation of the EPA with the EU.  He asked what progress had been made in implementing the continental integration agenda.  He asked what the impact of the economic downturn had been on trade between South Africa and the EU.  He asked what effort was being made to beneficiate (i.e. adding value) to products exported by South Africa, particularly in the sensitive areas of agricultural, fishing and clothing products.

Mr Carim advised that his comments on the AGOA issue were based on his understanding of the matter.  If requested, a written response would be provided to the Committee.  Nine candidates had been proposed for the position of Director-General of the WTO and the process of assessing the candidates was in progress.  He understood that the products to be exported from South Africa to Cuba had been identified and that settlement would be made in accordance with the agreement. 

In response to Ms Van der Merwe’s question, Mr Carim explained that the General System of Preferences (GSP) provided duty-free access to products outside the TDCA and Cotonou agreements.  The current GSP scheme would end in 2013.  If the EPA was not concluded by the end of 2013, South Africa, Namibia and Botswana would lose preferential access for a number of products.

Negotiations at the continental level had been a slow process.  Progress was being made in the development of a framework but the process had been delayed by the Tripartite FTA.  Different arrangements would apply to different product groups and phasing-out arrangements needed to be in place.  The process was extremely complicated and difficult to align all the elements.

The economic downturn had significantly impacted on trade with the EU.  There were signs of recovery but trade during 2011 was still 30% lower than the data recorded for 2008.  The beneficiation of exported products was important and the major focus in trade negotiations was on improved access for value-added products rather than for raw materials.

The Chairperson advised that the Minister of Trade and Industry would address the Committee on Friday, 15 February 2013.  The Committee would take the opportunity to pose questions to the Minister on the AGOA matter.  She asked Mr Carim to brief the Minister on the Committee’s concern over the matter.

Mr Radebe agreed that the AGOA matter should be placed on the Committee’s agenda.  South Africa’s competitive position was at risk if the matter was not resolved.

The Chairperson thanked Mr Carim for the input provided.  The Committee valued the interaction with his Department as the various treaties and trade agreements impacted on the work of the Committee.

Consideration of the Committee process regarding the Intellectual Property Laws Amendment Bill
The Chairperson advised that she was considering the necessity of obtaining further opinion on the Bill.  She had engaged with State Law Adviser Advocate Charmaine van der Merwe and the Parliamentary Legal Advisers on the matter.  She asked Members to familiarise themselves with the Bill and to allow her more time to obtain further input.

The Committee Secretary read the motion of desirability for the Committee to request further opinion on the Bill.  Mr Radebe moved for the adoption of the motion, which was seconded by Mr Oriani-Ambrosini.

Consideration of the Committee process regarding the National Credit Amendment Bill
The Committee Secretary reported on the progress made with the Bill.  A motion of desirability to proceed with the Bill had to be passed by the Committee.  It had been suggested that stakeholders were invited to make submissions to the Committee on the Bill.  A list of stakeholders would be compiled and Members were invited to add the names of other stakeholders to the list.  The Committee would issue invitations to the stakeholders identified to submit comment.

The Chairperson said that the list of persons who had already made submissions on the Bill was required.  She suggested that a deadline of two weeks hence was set for obtaining the list.

Mr Oriani-Ambrosini said that the matter was less urgent than some of the other matters the Committee needed to deal with and that there was no need to rush the matter.

Mr Radebe pointed out that the Bill had broken new ground and should be dealt with by the Committee as soon as possible.  Due process would be followed.

The Chairperson advised that the processing of the Bill would be included in the Committee’s agenda.

Adoption of the minutes of Committee meetings
The Committee considered and adopted the minutes of meetings held by the Committee on 28, 29 November 2012 and 29, 30 and 31 January 2013.

Other Committee Business
The Chairperson asked Members to table apologies when unable to attend Committee meetings for good reason.  She asked the parties to ensure that alternate Members were nominated to ensure that the Committee had a quorum at meetings when formal decisions needed to be taken.

The Chairperson had attended a Brazil/India/China/South Africa (BICSA) function the previous day.  She had found the engagement valuable and would make the documents that were circulated available to the Members.  A BICSA summit would be held in Durban during March 2013 and would be attended by representatives from the Committee.

The Committee’s application for an oversight visit to the Eastern Cape was not approved on the basis that the visit had not been included in the budget.  The Chairperson advised that a further request would be submitted.  The Committee needed to undertake an overseas study tour as well, which would be applied for separately.

Mr McIntosh suggested that the Committee considered Turkey and Poland as destinations for the study tour as there had been interesting developments in those countries with regard to manufacturing.

Mr Oriani-Ambrosini had reservations about the value derived from study tours.  Visits to other countries by Members of Parliament carried some weight.  In his opinion, more benefit would be derived from a visit to China, particularly if the Committee managed to arrange more beneficial trade arrangements with that country.

The Chairperson advised that a number of countries had been identified for study tours.  The decision would be informed by the work of the Committee.

Mr Radebe advised that a member of the Committee’s support staff was in hospital after suffering a stroke.  He suggested that the Committee sent wishes for his well-being.  The Chairperson agreed to the suggestion.

The Committee Secretary advised that the following meeting of the Committee would be held on Friday, 15 February 2013.

The meeting was adjourned.


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