Department on SADC Trade Protocol: briefing

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Trade and Industry

18 June 2002
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Meeting report

18 June 2002

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SADC Protocol Status Powerpoint Presentation

: Dr. R. H. Davies

Committee was informed that the progress towards a SADC free trade area was on course and that only a few minor issues were outstanding. There had been a slight increase in regional exports to South Africa but that the general situation was that the latter's trade terms had continued to increase at the expense of other regional players. It was related that the political instability in Zimbabwe had negatively affected South Africa's exports to that country.

Chair informed the Committee that debate on trade and industry would be on the 27 June 2002 and that the Committee would hear final briefings on trade agreements on the 19 June 2002. He added that the following week the Committee would deal with sports policy and that there would be joint meetings with the Committee on public service around this issue.

Presentation by Sifiso Ngwenya
Mr Ngwenya informed the Committee that all the SADC countries with the exception of Angola, the DRC and Seychelles were participating in the implementation of the Trade Protocol. He explained that South Africa was playing a leading role in the implementation of the Free Trade Area (FTA) because it was keen to encourage economic growth in the region.

Mr Ngwenya pointed out that the FTA is based on the principle of asymmetry whereby South Africa is front-loading its tariff phase out programme whilst other countries are back-loading. He revealed that by September 2000 South Africa had trimmed down its tariffs by 65%.

Mr Ngwenya explained that Sugar was excluded from the FTA programme due to the fact that the world prices for this commodity were greatly distorted a situation that threatened to hurt the local market. He however noted that South Africa had through quotas accepted to allow a specific amount of sugar from the region. He added that the general feeling of other SADC countries was that the Sugar market should be opened but South Africa was adamant that this could damage the local industry.

Mr Ngwenya said that the other outstanding issues related to chapter 11 of the Trade Protocol, which dealt with wheat. He pointed out that the main problem here was that no country in the region produced a surplus of wheat and hence the argument that the market for this product be opened to outside competition.

Mr Nwenya contended that South Africa was resisting the call to liberalise the wheat product for fear that cheap subsidised wheat from North and South America could cause serious harm to the local market. He however noted that there had been good progress on this impasse and predicted an early agreement on the issue. He pointed out that the problem resides with the difficulty one would encounter in coming up with appropriate origin rules to cover such imports.

Mr Ngwenya continued that Chapter 39 was also outstanding but that agreement would soon be reached. He said other SADC countries felt that importation of waste should be zero rated to allow them to import the waste for the manufacture of plastic articles but that South Africa was opposed to this move although it later relented. Hence the only outstanding issue was one of environmental concerns which once addressed would pave the way for agreement on the matter.

As regards Chapter 84 which deals with Electrical equipment and machinery, Mr Ngwenya said that parties were very close to agreement save that South Africa strongly felt that the rules of origin should encourage the benefaction of its raw materials whilst Mauritius is pushing for the blanket liberalisation of this sector. He added that South Africa would like a situation where 45% of materials used were sourced from the region but that since only Zimbabwe and South Africa were the potential beneficiaries on this arrangement other countries were not very keen to pursue this angle.

Mr Ngwenya pointed out that Chapter 85 had not been discussed since South Africa initially wanted this item to be excluded but rescinded its decision later and that therefore no progress has been made on that score so far.

As for Chapter 90, Mr Ngwenya said very minor technical details were delaying agreement on this item. He explained that South Africa was seeking stricter origin rules of about 65% to cover operations in this area. Trade in this area is therefore running on the MFN basis in the interim until this issue is resolved.

Mr Ngwenya reported that most countries were behind schedule on their tariff reduction programme due mainly to fear of loss of revenue. He said South Africa had accelerated its tariff phase down programme on textiles and clothing. He explained that this move was based on the realisation that the area of textile and clothing was the only window of opportunity for the regional partners to industrialise. He contended that therefore there was no sense in closing this space yet urging that measure should be put in place to encourage economic growth in the region.

Mr Ngwenya further explained that under the agreement the region was free to source its textile material from elsewhere a move that had elicited strong demur from the local textile industry who felt that raw materials should be sourced from within the local market. Mr Ngwenya however clarified that this allowance would only run up to 2005 from which time the SADC countries would be obligated to source raw materials from the region.

The Chair asked if discussions on trade in services had commenced.

Mr Ngwenya replied in the negative. He said that parties were still familiarising with the requirements and implications of trade in services since it was a new area in the trade regime. Parties were still in the process of compiling relevant regulations on domestic law as regards financial services, competition law, transport, tourism, energy and Tele-communication before the matter could be tabled for discussion.

The Chair asked if there has been any impact on intra-SADC trade flows especially with regard to SADC exports to South Africa as a result of the implementation of the FTA.

Mr Ngwenya said that there has been a slight improvement in regional exports to South Africa. In 1999 imports from the region were worth R2.17 billion, in 2000 the figure declined to R2.01 billion and in 2001 the figure rose to R2.4 billion. He attributed the marginal increase to the implementation of the FTA.

Mr Duma (ANC) said that importation of waste material was responsible for the foot and mouth disease in 2000. He then asked if there were any measures in place to guard against a repeat of such eventuality.

Mr Ngwenya said that he was not aware of harmful effects caused by the importation of waste material to livestock in the country. He said that his counterparts in Agriculture were better placed to respond to this question since they were involved at every level of trade agreement discussions.

Mr Radcliffe (NNP) asked if there was any discernible change in the regional trade balance.

Mr Ngwenya, noted that trade balance in the region had been deteriorating in favour of South Africa in that in 1999 the ratio was 6:1, in 2000 8:1 and that ratio rose in 2001 to 9:1. He hastened to point out that it was still too early to prejudge the performance of the FTA at this stage. South Africa had seen a marked increase in its exports to the region and that this trend is set to continue.

M/s Ntuli (ANC) enquired how the local textile industries were affected by the implementation of the SADC Protocol.

Mr Ngwenya replied that the impact to the local textile industry was not that much severe as to cause material injury. He explained that part of the reason was to do with the AGOA facility, which has seen South African textile exports to the USA increase by 45%. The spin-off in AGOA was that South African industries were becoming outward looking and in the process creating space for regional textile imports.

He continued that another spin-off was that as a result of AGOA the region had increased orders for the South Africa raw materials. He explained that the main requirement by the AGOA is that the raw materials must either be sourced from America or the sub-Saharan region and that South Africa provided a market for raw materials.

Mr Sigaba (ANC) asked the measures, if any, the Department had put in place to ensure that countries do not flout rules of origin to tranship goods, which ultimately end up in the South African market.

Mr Ngwenya replied that so far there have not been any major problems in the implementation of the Trade Protocol but clarified that there were problems with Malawi on the Sugar products but that this has since been resolved.

The Chair asked in which way, if at all, the situation in Zimbabwe had impacted on the implementation of the Trade Protocol.

Mr Ngwenya replied that indeed the situation in Zimbabwe had slackened many programmes that were to run under the Protocol. He said that South Africa's exports to Zimbabwe had declined but that imports from Zimbabwe had not been affected. He explained that in 1999 South Africa imported goods worth R 1.28 billion from Zimbabwe and that this figure rose to R1.42 in 2001 but that exports moved from R5.1 billion in 1999 to R4.7 billion in 2000 and R5.3 billion in 2001.

Mr Ngwenya pointed out that Mozambique had overtaken Zimbabwe as the leading importer for the South African products such that in 1999 R4 billion worth of products were exported to Mozambique and the figure rose to R5 billion in 2000 and R5.7 billion in 2001.

The Chair noted that there were other significant barriers to trade in the region other than tariff. He enquired on how the Department proposed to address the debilitating problem of supply side handicap that was a big hindrance to trade in the region.

Mr Ngwenya admitted that production capacity was a real challenge for the region and that this was the very reason the SADC countries are unable to fully utilise the Lome quotas that were availed to them to export duty free to the EU market. The important challenge was to strive and attract investment in the regional and that to this end South Africa was encouraging its businesses to spread outward to the region.

He noted with satisfaction that private businesses have responded to this challenge positively and that there had been significant investments in the region especially in Mozambique spear-headed by the South African business people.

Mr Ngwenya contended that the main disincentive to investment in the region had been political instability and noted that the spirit of NEPAD was to ensure that countries create a conducive environment for foreign direct investments (FDI) to flow into the region. He lamented that only one percent of world FDI came to Africa.

Mr Ngwenya pointed out that it was at times difficult for South Africa to show foreign investments in the region when there were many teething political problems beyond its control. He singled out the example of Zimbabwe, which had significant manufacturing capacity that was going to waste due lack of investor confidence in the country's political stability.

Mr Ntuli (ANC) asked about the efforts SADC was making to draw in other countries that are not participating in the FTA to get involved.

Mr Ngwenya explained that Angolan's isolation was caused by the intermittent internal turmoil, which had now subsided, and that the country had made advanced preparations to get involved in the implementation of the Protocol.

As with Seychelles, Mr Ngwenya said that the stand-off had to do with membership fee which Seychelles was unhappy with. Seychelles wanted this contribution to be equitable in that it should reflect the economy and size of a country. Provision was being reversed and once finalised Seychelles would be incorporated in the implementation programme. Mr Ngwenya said that the situation in the DRC was such that he could not predict with any measure of certainty when that country would be in a position to take part in the FTA programs.

The Chair reminded members that the series on trade agreements would continue the following day.

The meeting was adjourned.



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