Tripartite Free Trade Area (T-FTA) negotiations; WTO trade facilitation developments: update

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Trade and Industry

28 July 2015
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Department of Trade and Trade and Industry (DTI) said the COMESA-EAC-SADC Tripartite Engagement followed the developmental integration approach and had market integration, i.e. the Tripartite Free Trade Area (TFTA), infrastructure development and industrial development as its three pillars. Negotiations towards the TFTA were launched at the Second Summit in Johannesburg on 11 June 2011. Negotiations towards the text of the free trade agreement had progressed considerably and South Africa, as part of the South African Customs Union (SACU), had exchanged a tariff offer with the East African Community (EAC) and negotiations were underway. The SACU tariff offer to Egypt was in the final stages of being concluded and SACU would also negotiate with Ethiopia and the other non-SADC members.

The low level of intra-Africa trade, largely due to low level of industrial development severely limited the potential for intra-Africa trade. The Tripartite Technical Committee on Industrial Development (TTCID) had prepared the draft Roadmap and Programme of Work on the Industrial Development Pillar as well as the Draft Modalities for Cooperation in Industrial Development. Both the Modalities of Cooperation and the Roadmap required further national consultations.

In terms of infrastructure development, the Project Preparatory and Implementation Unit (PPIU) which supported the preparation of bankable infrastructure projects had been operationalised. The North-South Corridor (NSC) was a cross-border transit and transport value chain to address transport constraints in a sequenced and multi-modal way. It comprised of inter-related projects that addressed road infrastructure, road transport facilitation, management of railway systems and rail infrastructure, physical and procedural improvements at border crossings, port infrastructure, management of air transport and energy interconnector. The aim was to address both physical and non-physical bottlenecks along the Durban to Dar Es Salaam Corridor, with an eventual extension to Cairo.

The instrument on Movement Business Persons (MBP) to form part of the Tripartite Agreement had been agreed on by Heads of State at the Second Tripartite Summit in June 2011. There was an agreement in place between the respective South African Ministers that the Department of Home Affairs (DHA) would lead the process and the DTI and the Department of Labour would provide technical support to the DHA.  Visas on Arrival and the Guiding Principles were the two main areas of disagreement that persisted. South African legislation did not provide for the granting of visas on arrival and the EAC insisted on keeping the principles of Variable Geometry, Reciprocity and Building on the Acquis, but have failed to explain how these would manifest in the implementation of the Agreement. The Secretariat would send notification to convene the next meeting.

The COMESA-EAC-SADC Free Trade Area was launched at the third Tripartite Summit that took place in Egypt on 10 June 2015. The Tripartite Free Trade Agreement had been signed by 16 of the 26 participating countries. South African has not yet signed the agreement since the legal scrubbing of the agreement must still be finalised and internal process to get approval for signature would then be followed. The key focal areas of the TFTA Post Signature Implementation Road Map were the finalisation of negotiations on outstanding areas of the TFTA agreement, designation and notification of TFTA focal points and ratification of the TFTA Agreement. It would be followed by the depository of the Instruments of ratification, commencement of implementation of the TFTA Agreement and notification to the World Trade Organisation (WTO).

The Committee asked for a detailed timeline of the process, as well as enquired whether infrastructural plans were in place as it related to the NSC. Concerns were raised on the ‘slowness’ of the process, the fact that South Africa had not signed yet and whether the country had the legislative capacity to deal with online visa applications. Non-tariff barriers and the Department’s commitment to the negotiations were also raised during the discussion. Members wanted an outline of the process post signing of the Agreement and what the implications would be for countries that had not signed once the necessary 14 countries had ratified the Agreement. The viability of SACU, the EAC and SADC post enforcement of the Agreement was also questioned.

Meeting report

The Chairperson welcomed everyone and the agenda for the meeting was adopted.

Briefing on the COMESA-EAC-SADC Tripartite Engagement

Mr Phemelo Marishane, Acting Chief Director: International Trade and Economic Development Division (ITED), DTI, said the initiative followed the developmental integration approach. It was structured not merely as a market integration/trade liberalisation event, but had market integration, i.e. the Tripartite Free Trade Area (TFTA), infrastructure development and industrial development as its three pillars.

The negotiations towards the TFTA were launched at the Second Summit in Johannesburg on 11 June 2011. Negotiations towards the text of the free trade agreement had progressed considerably and the main agreement and 7 annexes had been concluded. Existing community agreements would not be re-opened, but would be rolled into the TFTA. No new tariff offers had been concluded yet and South Africa, as part of the South African Customs Union (SACU), had exchanged a tariff offer with the East African Community (EAC) and negotiations were underway. The SACU tariff offer to Egypt was in the final stages of being concluded and SACU would also negotiate with Ethiopia and the other non-Southern African Development Community (SADC) members.

The low level of intra-Africa trade, largely due to low level of industrial development severely limited the potential for intra-Africa trade. Products imported by African countries were not being manufactured by other African countries. Industrial development and diversification were essential to enable African countries to trade amongst themselves and to benefit from free trade agreements. The Tripartite Technical Committee on Industrial Development (TTCID) had prepared the draft Roadmap and Programme of Work on the Industrial Development Pillar as well as the Draft Modalities for Cooperation in Industrial Development. The modalities would form a framework for cooperation while the work programme/roadmap outlined interventions necessary for enhancing productive capacities in the tripartite region. Both the Modalities of Cooperation and the Roadmap required further national consultations.

Mr Marishane said the purpose of infrastructure development was to improve the region’s infrastructure to improve the efficiency of the internal trade and transport network (road, rail, water and air, including ICT and energy). In terms of progress, the Project Preparatory and Implementation Unit (PPIU) which supported the preparation of bankable infrastructure projects had been operationalised. The North-South Corridor (NSC) was a cross-border transit and transport value chain to address transport constraints in a sequenced and multi-modal way. It comprised of inter-related projects that addressed road infrastructure, road transport facilitation, management of railway systems and rail infrastructure, physical and procedural improvements at border crossings, port infrastructure, management of air transport, and energy interconnectors. The aim was to address both physical and non-physical bottlenecks along the Durban to Dar Es Salaam Corridor, with an eventual extension to Cairo. The region had endorsed the principle of using the Corridor to promote industrialisation and this would involve developing regional value chains in the implementation of the NSC projects and encourage local and regional sourcing of inputs required for the development of identified projects.

The instrument on Movement Business Persons (MBP) to form part of the Tripartite Agreement had been agreed on by Heads of State at the Second Tripartite Summit in June 2011. The negotiations would be managed and supervised by Tripartite Sectoral Ministerial Committee on Trade, Finance, Customs, Economic Matters and Home and Internal Affairs. There was an agreement in place between the respective South African Ministers that the Department of Home Affairs (DHA) would lead and the DTI and the Department of Labour would provide technical support to DHA.

The Tripartite Technical Committee on Movement of Business Persons (TTC-MBP) has had 4 meetings, but extensive consultations had taken place between DHI, DTI and the Department of Labour.  Visas on Arrival and the Guiding Principles were the two main areas of disagreement that persisted. South African legislation did not provide for the granting of visas on arrival and the EAC insisted on keeping the principles of Variable Geometry, Reciprocity and Building on the Acquis, but have failed to explain how these would manifest in the implementation of the Agreement. The Secretariat would send notification to convene the next meeting.

The COMESA-EAC-SADC Free Trade Area was launched at the third Tripartite Summit that took place in Egypt on 10 June 2015. The Tripartite Free Trade Agreement had been signed by 16 of the 26 participating countries. South African has not yet signed the agreement since the legal scrubbing of the agreement must still be finalised and internal process to get approval for signature would then be followed. Annex 1 on tariff commitment schedules, Annex 2 on Trade Remedies and Annex 4 on Rules of Origin were the three outstanding annexes to the agreement. There was an indicative time frame of 12 months to finalise the outstanding work on the above three annexes.

The key focal areas of the TFTA Post Signature Implementation Road Map were the finalisation of negotiations on outstanding areas of the TFTA agreement, designation and notification of TFTA focal points and ratification of the TFTA Agreement. It would be followed by the depository of the instruments of ratification, commencement of implementation of the TFTA Agreement and notification to the World Trade Organisation (WTO).

Discussion

Mr A Williams (ANC) asked when the process had started and for timelines to be provided. He referred to the Durban to Dar Es Salaam Corridor and asked if there were actual plans in place for this project. He asked whether there were road or rail infrastructure plans to get from South Africa to East Africa.

Ms Niki Kruger, Chief Director: Trade Negotiations, DTI, replied that negotiations were launched in 2011 and it took quite a while in the preparatory phase to exchange information and it took 18 months to agree on the modalities and negotiations could only started after this phase. The framework agreement had been finished and three of the 10 annexes still needed to be finished. One of those annexes was on tariff commitments which were critical to the TFTA and negotiations had been started. It was a process that took a lot of time because the whole tariff book was being negotiated and for South Africa alone that meant 7 000 tariff lines. It was a technical process and negotiations had started with the EAC which included five countries. South Africa’s agreement with Tanzania under SADC would stay in place and negotiations with Burundi, Kenya, Rwanda and Uganda were ongoing while the offer to Egypt had almost been finalised. The fact that South Africa was negotiating as SACU was complicating the process, because once the country had come to an internal agreement on an offer that could be made, South Africa had to approach SACU to see the offers of the other countries and only then a consolidated offer to the EAC could be made. The outstanding work under Phase I would be finalised and the Ministers provided the timeline that the outstanding tariff commitments should be finalised within six to 12 months. The offer to Ethiopia also needed to be finalised, as well as offers to countries not part of SADC, which included Djibouti, Libya, Sudan, Comoros and, Eritrea. A number of negotiations were taking place at the same time and to meet the deadline would be tight fit, but that was what the Department was aiming for. At the same time Annex 2 on Trade Remedies was also being negotiated and the agreement for now was that the WTO provisions on trade remedies would be used. The requirements of the WTO were very complicated so there was an attempt to look at trade remedies that would be easier to use. This would still be negotiated, as well as Rules of Origin which were closely related to tariff commitments. A big part of the Rules of Origin had been finalised.

Mr Marishane replied that infrastructure required resources and the projects needed to be structured in such a way to be able to have a funding source. It was cross-border initiatives and some of the countries did not have the necessary capital investment. The NSC was one of those structures that ensured that plans were in place so that when the projects were ready, investments in the projects would be definitive.

Mr N Koornhof (ANC) raised his concerns on the slowness of the process, as well as the fact that South Africa had not signet yet. He asked for a list of the 16 countries that have already signed; whether the remaining 10 countries would sign, and what the reactions of the European Union (EU), China and the United States of America (USA) were to the TFTA. He wanted to know whether South Africa had the legislation to deal with online visa applications.

Mr Marishane replied that online visas were a DHA competency and they would be better posed to answer on visa processes. There had not been very much formal engagements with the EU, China and the USA, except for their need to understand how the Tripartite Engagement would be put in place.

Ms Kruger confirmed that the EU, China and the USA had been asking about how the TFTA would work, and the EU specifically had been very supportive of this process. They saw a lot of benefit on a continental level.

Mr G Hill-Lewis (DA) asked when South Africa would sign, because the Agreement was not new and there should have been enough time for ‘legal scrubbing’. He asked for an outline of what came after signing and ratifying so that the Agreement could be enforced, as well as the projected timeline. He also wanted to know what the implications would be for those countries that did not ratify the Agreement. The annexes and Phase II negotiations did not deal with non-tariff barriers and this was a huge inhibitor to trade in Africa. DTI previously reported that there was a mechanism where people could report non-tariff barriers to some kind of secretariat. This mechanism dealt with non-tariff barriers on a case-by-case basis and although it should be applauded it did not deal with systemic issues on the Continent. South Africa was the major provider of professional consulting services on the Continent and he asked for a little more detail on the Phase II negotiations.

Ms Kruger replied that South Africa could not sign the Agreement, because it had not been finalised months before the Summit, but rather a few days before the Summit. The legal scrubbing for the main agreement still needed to be finalised to comply with South African processes. Legal scrubbing was a combined effort by all of the member states and another legal scrubbing meeting would be held in August 2015 where it would hopefully be finalised and then South Africa could start with internal processes necessary to be able to sign. Sixteen countries (Angola, Burundi, Comoros, Congo, Djibouti, Egypt, Kenya, Malawi, Rwanda, Namibia, Seychelles, Swaziland, Sudan, Tanzania, Uganda and Zimbabwe) have signed the agreement. Once 14 countries had ratified the Agreement, it would enter into force. Once the Agreement was in force and a country had not signed, that country would have to accede to the Agreement. If a country had signed, that country only needed to go through its own ratification processes for the Agreement to be enforced in the specific country. It would take approximately 24 months for 14 countries to conclude ratification processes and it would give the necessary time to complete Annexes 1 and 4 that spoke to new market accesses which were critical to the TFTA. Phase II (services negotiations and new generation issues) would be completed by the end of 2017 which would result in a new ratification process for those sections specifically. She agreed that non-tariff barriers were critical and said there was a specific annex on non-tariff barriers that have been concluded and only needed to go through legal scrubbing. The annex contained specific mechanisms on how to deal with non-tariff barriers and once in place, would be able to deal with systemic issues across the African continent. South Africa was the biggest services economy on the continent and the country was currently busy negotiating services in the SADC context. Integration in terms of services in the EAC and COMESA was very limited and a lot of groundwork would need to be done and a new framework should be developed. The first Tripartite meeting on services negotiations had been set for September 2015 and new generations issues like intellectual property, competition and investment would also be negotiated.

Mr Marishane added that, in terms of services, the capacity and resources of some of the member states to negotiate were a challenge. Some of the member states were struggling to even send enough officials to meetings.

Mr Hill-Lewis asked whether this heralded the end of SACU. Namibia and Swaziland, who were members of SACU, had signed, but South Africa had not yet signed. If these counties ratified the agreement, but negotiations had to be done with a single common tariff, he asked whether it would dissolve SACU since, and he quoted, “we were already tired of giving them so much money”. He asked what would be the purpose of having the EAC or SADC once the TFTA came into effect. He asked how seriously the Department was taking these negotiations and how many people were working on the negotiations, because it was a huge amount of work that needed to be done.

Mr Marishane replied that this was a free trade agreement whereas SACU was a customs union. SACU maintained a common external tariff and SACU was bound by the Agreement itself. The ratification of the Agreement would be by all SACU member states in order to protect the common external tariff. This Agreement recognised that the SADC protocols existed and as and when the Agreement was ratified and all annexes were in place, trading would take place within the context of the TFTA where the freedom of movement of business persons would be key. The Department took these negotiations very seriously and there were officials in almost every area of the work. The negotiations were structured in such a way that there were technical working groups, a trade negotiating forum and a director-generals’ forum with a fair amount of representation at all levels.

The Chairperson reminded Members that the Committee would deal with SACU the following day. She asked that the Rules of Origin be a little bit more unpacked, because it related to industrialisation and South Africa would want to support a more complex value addition process, while other member states would like to retain a simpler process.

Ms Kruger replied that the Rules of Origin was a very important area for the country, because it would be able to determine whether market access could be mapped. South Africa had been consistent from the start in its position to have risk rules that would mean value addition would depend on product specific rules and this approach had been agreed to in the TFTA Engagement. The focus on the negotiations on the Rules of Origin would ensure that value addition, regional integration and the development of regional value chains were supported with preferences given to TFTA member states.

The Chairperson referred to the projects mentioned on slide 10 and asked that the Committee be provided with a list of the projects, a detailed timeline and a list of the 26 countries and the 10 countries that have not yet signed. There were other areas where there might be challenges. The Intellectual Property Laws Amendment Act would be amended, but if the Committee was not made aware of the challenges, it would not be addressed. The presentation had been a really sound introduction and if there was a concerted effort to work towards an integrated and coordinated approach to trade and industry where industry drove trade, the Agreement needed to be in line with the regional integration plan. More information should be provided on the Roadmap and Programme of Work.

The Chairperson thanked everyone and the meeting was adjourned.

 

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