Trade, Development & Cooperation Agreement (TDCA) Additional Protocol on Croatia Accession to European Union

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Meeting Summary

The Department of Trade and Industry (DTI) briefed the Committee on the Additional Protocol to SA/EU Trade Development and Cooperation Agreement (TDCA). SA/European Union (EU) trade relations were governed by the TDCA, which provided for the establishment of a free trade agreement over a transitional period of twelve years. The TDCA was the most ambitious cooperation agreement ever concluded with a third world country. The TDCA came into force on the 1 May 2004 and its full implementation had been effective since the end of 2012. The agreement provided for the liberalisation of 95% of the EU’s imports from SA within ten years, and 86% of SA’s imports from the EU in twelve years, which came into full effect in 2012. Trade between SA and the EU increased from R150bn in the year 2000 to R407bn in 2014. There was a 231% increase in trade since being provisionally implemented. The scope of the Agreement covered about 90% of current trade between SA and the EU. The Agreement covered a wide field of cooperation which included trade related issues like competition and intellectual property, financial assistance, developmental cooperation, economic cooperation and political dialogue. SA as part of the Southern African Customs Union (SACU) entered into an economic partnership with the EU in 2014. The benefits of the TDCA were that it was a legal instrument that bound SA’s trade relations with the EU. Since the TDCA was entered into there was improved market access for both the EU and SA. The TDCA also made provision for the development of Additional Protocols to ease the smooth accession of new members into the EU and also for the extension of trade preferences. Since the TDCA was signed there had been three EU enlargements. The first was in 2004 with the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia joining the EU. In 2007 Bulgaria and Romania joined. The latest addition to the EU was Croatia in July 2013. The briefing was therefore aimed at Parliament ratifying the Protocol to include Croatia to accede to the EU. The Additional Protocol created a legal basis for the extension of the TDCA to include Croatia.  The aim was to ensure that Croatia benefited from the TDCA and that SA’s exports gained preferential treatment into Croatia.

The DTI was essentially asking the Committee to fast track the Protocol. Delays could not take place, as export duties were far too expensive. Opportunities and challenges were highlighted. With the EU enlargement there would be greater economic challenge for South African economic operators but also be a bigger opportunity to export. Currently the EU accounted for 40% of SA’s total trade. With the current enlargement the EU population was expected to increase by more than 4m thus providing an even bigger market for SA’s exports. It was also expected that the TDCA would have an overall positive impact on trade between SA and Croatia. SA’s main exports to Croatia included mineral products, base metals, prepared foodstuffs, beverages, cement and vegetable products. Croatia on the other hand exported machinery and mechanical appliances, vehicles and wood to SA. Further opportunities existed for SA in sectors such as agriculture, machinery, transport and electrical equipment, which South African exporters could exploit once SA’s preferential access into Croatia came into force.

The accession of Croatia to the EU had the potential to create jobs in various sectors and foster economic growth. It was anticipated that Croatia’s accession to the EU would hold more opportunities than threats for SA. Trade between Bulgaria and SA had increased from R443m in 2004 to R1.4bn in 2014. Trade with Romania had increased from R654m in 2007 to R3.8bn in 2013. Members were assured that consultation on the Protocol had taken place. Prior to signing the Protocol, the DTI had consulted with the National Economic Development and labour Council (NEDLAC) on the accession of Croatia to the EU. Industry representatives had identified no sensitive areas and agreed with the signing of the Additional Protocol to Croatia. The DTI had also consulted with stakeholders like the Department of International Relations and Cooperation (DIRCO), the Department of Justice (DOJ), the Department of Agriculture, Forestry and Fisheries (DAFF) and the South African Revenue Services (SARS). Presidential approval was obtained from the Minister of Trade and Industry to sign the Additional Protocol to include Croatia. The EU Parliament had approved the Protocol. Once the South African Parliament approved the Protocol it would come into force. The South African Revenue Service (SARS) was the implementing agent of the Agreement. The SARS would implement the Additional Protocol within its current organisational framework. The date for implementation would be published by the SARS once parliament had ratified the Additional Protocol. The DTI would inform the relevant stakeholders and economic operators of the date for implementation through various media houses and export councils. There was no envisaged drastic change over the short to the medium term in SA’s trade and economic relations with the EU as a result of Croatia’s accession. Given that the EU was SA’s largest trading partner there was a fair level of market penetration and the framework for duty free market access was already in place. This offered the South African companies trading with the EU a seamless expansion to the Croatian market. In conclusion the inclusion of Croatia in the TDCA created a number of new opportunities for South African companies to expand their exports to Croatia or to establish a new export market.

Members asked if the Agreement covered 90% of SA’s trade with the EU, what covered the remaining 10%. The DTI was asked how the refugee situation in the EU was impacting upon the political climate. Concern was raised on how a balance was to be struck between importing goods from the EU whilst at the same time protecting locally manufactured South African goods. The fear was that local industries might be killed off by the importation of cheaper manufactured goods from the EU. Members asked how cooperatives could be brought into the agricultural space; and whether there were incentives on Croatian import and export duties. If there were incentives, what type of incentives were they. Was there any tax relief on either side of the Agreement? Did the DTI offer incentives to South African businesses? Members were concerned that the Croatian government might be subsidising Croatian exports to SA. If it were the case then cheaper Croatian products would flood the South African market. The concern was that it would have a detrimental effect on SA’s domestic markets. Members felt that the briefing was not specific on the opportunities and challenges relating to the Agreement. The DTI was requested to provide members with figures on what the benefits of the Agreement to SA were. Information was needed on what the domestic and international benefits and challenges would be. Members asked for specifics on what the value of automotive exports from SA to the EU were. The DTI was furthermore asked what the value of exports from provinces to the EU was. The Committee requested the DTI to provide it with a full list of all SA’s exports to the EU.

Committee Minutes dated the 2 September 2015 were adopted unamended.

Meeting report

Department of Trade and Industry (DTI)
Ms Niki Kruger Chief Director: Trade Negotiations, undertook the briefing.
SA/EU trade relations were governed by the TDCA that provided for the establishment of a free trade agreement over a transitional period of twelve years. The TDCA was the most ambitious cooperation agreement ever concluded with a third world country. The TDCA came into force on 1 May 2004 and its full implementation had been effective since the end of 2012. The agreement provided for the liberalisation of 95% of the EU’s imports from SA within ten years, and 86% of SA’s imports from the EU in twelve years ,which came into full effect in 2012.Trade between SA and the EU had increased from R150bn in 2000 to R407bn in 2014. There was a 231% increase in trade since being provisionally implemented. The scope of the Agreement covered about 90% of current trade between SA and the EU. The Agreement covered a wide field of cooperation which included trade related issues like competition and intellectual property, financial assistance, developmental cooperation, economic cooperation and political dialogue. SA as part of the SACU entered into an economic partnership with the EU in 2014. The benefits of the TDCA were that it was a legal instrument that bound SA’s trade relations with the EU. Since the TDCA was entered into there had been improved market access for both the EU and SA. The TDCA also made provision for the development of Additional Protocols to ease the smooth accession of new members into the EU and also for the extension of trade preferences. Since the TDCA was signed there had been three EU enlargements. The first was in 2004 with the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia joining the EU. In 2007 Bulgaria and Romania joined. The latest addition to the EU was Croatia in July 2013. The briefing was therefore aimed at Parliament ratifying the Protocol to include Croatia to accede to the EU. The Additional Protocol created a legal basis for the extension of the TDCA to include Croatia.  The idea was to ensure that Croatia benefited from the TDCA and that SA’s exports gained preferential treatment into Croatia. The DTI was essentially asking the Committee to fast track the Protocol. Delays could not take place, as export duties were far too expensive.

Opportunities and challenges were highlighted. With the EU enlargement there would be a greater economic challenge for South African economic operators but also a bigger opportunity to export. Currently the EU accounted for 40% of SA’s total trade. With the current enlargement the EU population was expected to increase by more than 4m thus providing an even bigger market for SA’s exports. It was also expected that the TDCA would have an overall positive impact on trade between SA and Croatia. SA’s main exports to Croatia included mineral products, base metals, prepared foodstuffs, beverages, cement and vegetable products. Croatia on the other hand exported machinery and mechanical appliances, vehicles and wood to SA. Further opportunities existed for SA in sectors such as agriculture, machinery, transport and electrical equipment, which South African exporters could exploit once SA’s preferential access into Croatia came into force.

The accession of Croatia to the EU had the potential to create jobs in various sectors and foster economic growth. It was anticipated that Croatia’s accession to the EU would hold more opportunities than threats for SA. Trade between Bulgaria and SA had increased from R443m in 2004 to R1.4bn in 2014. Trade with Romania had increased from R654m in 2007 to R3.8bn in 2013. Members were assured that consultation on the Protocol had taken place. Prior to signing the Protocol, the DTI had consulted with the NEDLAC on the accession of Croatia to the EU. Industry representatives had identified no sensitive areas and agreed with the signing of the Additional Protocol to Croatia. The DTI also consulted with stakeholders like the DIRCO, the DOJ, the DAFF and the SARS. Presidential approval was obtained from the Minister of Trade and Industry to sign the Additional Protocol to include Croatia. The EU Parliament had approved the Protocol. Once the South African Parliament approved the Protocol it would come into force.

SARS was the implementing agent of the Agreement. The SARS would implement the Additional Protocol within its current organisational framework. The date for implementation would be published by the SARS once Parliament had ratified the Additional Protocol. The DTI would inform the relevant stakeholders and economic operators of the date for implementation through various media houses and export councils.

There was no envisaged drastic change over the short to the medium term in SA’s trade and economic relations with the EU as a result of Croatia’s accession. Given that the EU was SA’s largest trading partner there was a fair level of market penetration and the framework for duty free market access was already in place. This offered South African companies trading with the EU a seamless expansion to the Croatian market. T: Trade Negotiations he inclusion of Croatia in the TDCA created a number of new opportunities for South African companies to expand their exports to Croatia or to establish a new export market.

Discussion
The Chairperson referred to page 4 of the briefing document and asked whether economic partnership agreements were done through the SACU or with individual SACU member states.

Ms Kruger responded that she would try to answer most of the questions asked but would also provide the Committee with written responses where need be. On how the Agreement affected SACU trade relationships with the EU, currently there was only the TDCA between SA and the EU. Both Lesotho and Swaziland had unilateral agreements with the EU where they were given preferential access. Botswana, Lesotho and Swaziland implemented the trade part of the TDCA because there was a common external tariff. There would be an agreement that would regulate the SACU agreement with the EU.

Mr B Nthebe (ANC, North West) said he assumed that the agreement was not in conflict with any domestic law of SA. If the agreement covered 90% of trade what covered the remaining 10%. He pointed out that the briefing had spoken about modernisation, what type of modernisation was being referred to? Mention was also made of political climate. He asked what the DTI made of the refugee situation in the EU and how it impacted on the political climate? He said that the briefing did not speak to the balance that needed to be struck to protect South African products that were manufactured locally. There was concern that local industries might be killed off by importing cheaper manufactured products from the EU. He gave the example of the local wood sector that could suffer if cheaper wood products could be imported. The DTI was furthermore asked how cooperatives could be brought into the agricultural space.

Ms Kruger explained that when the DTI negotiated the TDCA it negotiated greater agricultural market access and hence new market access to the EU was obtained, hence the figure of 90%. She did not wish to comment on matters regarding the political climate. Croatia was part of the discussion on the TDCA. There was a Joint Operations Committee that met each year and dealt with a variety of issues that could range from aerospace to water issues. There was cooperation and developmental issues were also looked at. 

Mr W Faber (DA, Northern Cape) asked whether there were any incentives on Croatian import and export duties, and if so, what types of incentives were there? Was there any tax relief and was it on both sides of the agreement? He also asked whether SA was offering incentives to South African businesses. He was concerned that Croatian exports to SA would be subsidised by their government. The fear was that if the government of Croatia was subsidising its businesses to export to SA, then Croatian products would flood the South African market. What effect would it have on SA’s own domestic markets?

Ms Kruger stated that there were safeguard provisions in the TDCA on agriculture. If increases in imports of agricultural products caused problems in the domestic market then safeguards would kick in. There were also automatic agricultural safeguards. Lessons had been learnt from the TDCA. There were also safeguards under the economic partnership agreement.  Once the Agreement was implemented then the DTI could see what problems might arise that could be detrimental to domestic markets. South African companies were offered incentives. There was the reduction in import duties to Europe to encourage South African companies to export to the EU. The DTI had many incentives in place to assist SA’s domestic industries to be more competitive and also to be able to compete in the EU. SA was the biggest exporter of citrus to the EU, and had 70% of the EU citrus market. SA’s export of motor vehicles to the EU was also huge. The DTI had a programme in place to assist the motor vehicle industry in SA. The export duty for motor vehicles from SA to the EU was zero. Incentives were not per se specific but the DTI did offer assistance. The DTI was well aware of the problem of countries subsidising their companies. The World Trade Organisation put strict rules in place as a result. Subsidies were not allowed except for agriculture in some cases. The EU had agreed not to export products to SA or the SACU that had subsidies attached to them. She pointed out that there were other remedies or trade instruments to counter subsidies.
 
Ms Z Ncitha (ANC, Eastern Cape) pointed out that the briefing was not specific on the opportunities and challenges relating to the Agreement. She asked whether the DTI had figures on what the benefits of the Agreement to SA would be. Information was needed on what the domestic and international benefits and challenges would be.

Ms Kruger, on threats and opportunities, said there would be an increase in imports from Croatia and an increase in exports to Croatia.

The Chairperson agreed that the DTI could provide the Committee with statistics. The Committee represented the provinces and often asked questions for provincial buyers. He asked what the value of automotive exports to the EU was. What was the value of exports in provinces? The DTI was asked to provide the Committee with a list of all the exports to the EU. What were the risks attached to exporting to the EU? He also asked what the total value of imports from Croatia to SA was. He asked that the data or information be provided to the Committee within two weeks.

Mr Nthebe agreed that the Agreement should be ratified.

The Chairperson said the Committee was aware that the Department of International Relations and Cooperation (DIRCO) dealt with political matters. It would seem that the DIRCO and the Department of Justice was happy with the Agreement. SA’s business community also seemed happy with the Agreement. If SA had been thorough with the African Growth and Opportunity Act (AGOA) as it had been with the current Agreement then SA would not be having the problems with AGOA that it was having.

Ms Kruger responded that the TDCA was a negotiated agreement with the EU. The AGOA on the other hand was a unilateral performance agreement designed by the USA. SA was purely on the receiving end of benefits and hence the USA could dictate the terms. SA was not giving anything back to the USA. The USA could at anytime withdraw or change the AGOA. The AGOA in the end was unilateral.

The Chairperson read out the Committee’s Report addressed to the NCOP in which it recommended that the Additional Protocol to the SA/EU TDCA be ratified by parliament as was required by section 231(2) of the SA’s constitution.  

The Committee agreed to the Committee Report.

Committee Minutes
Minutes dated the 2 September 2015 were adopted unamended. 

The meeting was adjourned.




 

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