Trade Negotiations: status report; Trade Facilitation Agreement in Protocol amending Marrakesh Agreement establishing WTO

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Trade and Industry

17 February 2016
Chairperson: Mr M Kalako (ANC)
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Meeting Summary

DTI’s International Trade and Economic Development Division of the Department of Trade and Industry gave a briefing on its approach to trade negotiations and a status report on the South African Customs Union (SACU); Southern African Development Community (SADC) Trade Protocol; SADC Trade in Services; Tripartite Free Trade Agreement (TFTA); Continental Free Trade Area (CFTA); SACU-India; Economic Partnership Agreement (EPA); European Free Trade Agreement (EFTA); African Growth and Opportunity Act (AGOA). The 10th WTO Ministerial Conference outcomes would be presented on 23 February 2016.

South Africa’s approach to trade is informed by national development objectives, and aims to provide opportunities to increase exports of value added products. Focus areas are the exchange of tariff concessions and related rules of origin and related legal provisions and these trade negotiations should support regional integration.

• SACU – There are attempts to change it to a development integration agenda through a six point plan: Promote industrial development; Unified engagement in trade negotiations; Trade facilitation; Establishment of SACU institutions; Review of the revenue sharing arrangement; and Trade in services. A summit will be held in the first half of 2016 to agree on the best approach to advance the development integration agenda.

• SADC Trade Protocol – The 13 SADC member states have established a Free Trade Agreement which has resulted in an increase in intra-regional trade from USD 6 billion to USD 24 billion. Seychelles is the last member to accede and submit its instrument of ratification.

• SADC Service Negotiations – The first round of negotiations covers six priority sectors: communication, construction, energy-related, financial, transport, and tourism services.

• Tripartite Free Trade Agreement (TFTA) – There are three outstanding annexes to the agreement which constitute a built in agenda: Annex 1 on Tariff Commitment Schedules; Annex 2 on Trade Remedies; Annex 4 on Rules of Origin. The outstanding work has a time frame of twelve months. Negotiations to facilitate movement of business persons have advanced.

• CFTA Negotiations – This was launched during the 25th Ordinary Summit of Head of States and Governments.

• SACU-India PTA Negotiations – It was determined that it is a more focused approach to tariff preferences compared to FTA, and it also provides legal-institutional framework to manage trade. India is now South Africa’s sixth largest trade partner.

• EPA – The EU remains South Africa’s largest trading partner and South Africa decided to join the EPA process to establish a regional agreement with the EU and to secure further market access especially in agriculture. The negotiations were concluded and the agreement finalised in 2014. Through this South Africa has achieved improved market access. Several other restrictive trade rules have been eased under the EPA. The EU can provisionally apply the agreement while it is being ratified by all the EU countries but the SACU countries would have to ratify the agreement before it can enter into force.

• SACU-EFTA – This entered into force in 2008. The agreement comprises trade in goods including industrial products, processed agricultural products; fish and other marine products; rules of origin and customs duties on imports into SACU. The agreement is scheduled to be liberalized over a period of ten years. SACU states received duty-free, quota-free access for all industrial products at entry into force of the agreement.

• AGOA – This was enacted in 2001 as a unilateral preferential trade programme provided by the US to 48 Sub-Saharan African countries covering about 6 400 tariff lines. However the US lobbies insisted that some issues of interest to them such as poultry, pork, and beef needed to be addressed for South Africa to remain in AGOA. Top exports from the US to South Africa were machinery and mechanical appliances; vehicles, vessels and aircraft, chemical products, plastics and optical and medical equipment. South Africa’s top exports were vehicles and associated transport, precious metals, base metals, mineral products, and chemical or allied industries.

On poultry, in the first half of 2015 almost 20 US states had Avian Flu and the US demanded that South Africa negotiate a Poultry Trade Protocol to secure continued exports of poultry from those states that were not affected. With regard to beef, a ban was imposed by Cabinet on countries with Bovine Spongiform Encephalopathy (BSE) Mad Cow Disease. The ban was lifted on boned beef from several countries in 2015, including the US. The US has given guarantees that livestock it imports from the third countries would comply with US domestic requirements. On pork, the animal health authorities of both governments have been undertaking the necessary technical work to ensure trade safe from at least three diseases. The United States Trade Representative, Michael Froman, had announced his satisfaction with these agreements. There has been another outbreak of Avian Flu in the state of Indiana on 15 January 2016. South Africa has negotiated and signed a Protocol that governs trade when an outbreak occurs in the US. In each case South Africa’s vets were able to negotiate balanced agreements that took into account the need to ensure safe trade. The contentious issue between the two countries was achieving the appropriate level of protection on animal and public health risk mitigation measures.

In the discussion, Members sought assurance that AGOA was finalised. They also asked about the movement of business persons; meat inspections; accessing BRICS markets; trade benefits besides reduced import duties; the President’s statement that there will be a re-evaluation of all the trade agreements; SACU-India sensitive sectors; meeting in Namibia to discuss tariff offers; and imbalance in the EU-SA trade agreement.  

Ambassador Faizel Ismail, Special Envoy for AGOA, was invited to comment about AGOA. He said that the narrative in talks with the US needs to change. The main focus needs to be on how to use the agreement to get higher value-added products into the US market. South Africa needed to put in place a development stage in these talks. The US State Department is keen on supporting small black owned farms. There is much potential for increased US investments. South Africa can be used as an investment hub if these trade agreements are utilised to their fullest potential. The US is very aware that AGOA has a long way to go on the Continent. If the US and South Africa work together to help other African countries to utilise AGOA, it could change the entire landscape of trade on the continent.

The briefing on the Protocol amending the Marrakesh Agreement establishing the World Trade Organisation by including Annex 1A on the Agreement on Trade Facilitation, provided a brief history of when the amendment was raised for the first time, what the mandate was, and the aim. The provisions in the Trade Facilitation Agreement (TFA) were noted and three provisions were highlighted: Transparency and Appeals; Transit; Import/Export/Transit Fees and Formalities. Also discussed were Section II of TFA : Special and Differential Treatment; additional flexibilities such as the early warning mechanism and the dispute settlement grace period; time frames for implementation and the state of play in South Africa.

There was little time for discussion. After clarifying that South Africa was categorized a developing country, the Committee adopted its report recommending ratification of the Protocol.

Meeting report

Trade Negotiations: status report by Department of Trade and Industry (DTI)
Ms Xolelewa Mlumbi-Peter, DTI Deputy Director General: International Trade and Economic Development Division,  gave a briefing on its approach to trade negotiations and a status report on the South African Customs Union (SACU); Southern African Development Community (SADC) Trade Protocol; SADC Trade in Services; Tripartite Free Trade Agreement (TFTA); Continental Free Trade Area (CFTA); SACU-India; Economic Partnership Agreement (EPA); European Free Trade Agreement (EFTA); African Growth and Opportunity Act (AGOA). The 10th WTO Ministerial Conference outcomes would be presented on 23 February 2016.

Ms Mlumbi-Peter discussed the approach to trade as one informed by and support to national development objectives, and aims to provide opportunities to increase exports of value added products. She highlighted the focus areas as being the exchange of tariff concessions and related rules of origin and related legal provisions. Mainly, these trade negotiations should support regional integration.

• With regard to SACU she gave a brief history of its inception, as well as attempts to change it to a development integration agenda through a six point plan:
- Promote industrial development
- Unified engagement in trade negotiations
- Trade facilitation
- Establishment of SACU institutions
- Review of the revenue sharing arrangement
- Trade in services.

She noted that a retreat and a summit will be held in the first half of 2016 to agree on the best approach to advance the development integration agenda.

• The SADC Trade Protocol established a free trade agreement (FTA) amongst 13 SADC members which has resulted in an increase in intra-regional trade from USD6 billion to USD 24 billion. Seychelles is the last member to accede and submit its instrument of ratification.

• The SADC Trade in Services Service Negotiations has the first round of negotiations covering six priority sectors: communication, construction, energy-related, financial, transport, and tourism services.

• On the Tripartite Free Trade Agreement (TFTA), she gave a brief history of when the negotiations launched. There are three outstanding annexes to the agreement which constitute a built in agenda:
- Annex 1 on Tariff Commitment Schedules
- Annex 2 on Trade Remedies
- Annex 4 on Rules of Origin.

She gave the outstanding work a time frame of twelve months. She also noted that negotiations to facilitate movement of business persons have advanced.

• The CFTA Negotiations were launched during the 25th Ordinary Summit of Head of States and Governments.

• On the SACU-India PTA Negotiations, she said that it was determined that it is a more focused approach to tariff preferences compared to a FTA, and it also provides the legal-institutional framework to manage trade. She commented that India is now South Africa’s sixth largest trade partner.

• On the EPA, Ms Mlumbi-Peter highlighted that the EU remains South Africa’s largest trading partner, and that South Africa decided to join the EPA process to establish a regional agreement with the EU and to secure further market access especially in agriculture. The negotiations were concluded and the agreement finalised in 2014. Through this South Africa has achieved improved market access. Several other restrictive trade rules have been eased under the EPA. She explained that the EU can provisionally apply the agreement while it is being ratified by all the EU countries but the SACU countries would have to ratify the agreement before it can enter into force.

• The SACU-EFTA entered into force in 2008. The agreement comprises of trade in goods including industrial products, processed agricultural products; fish and other marine products; rules of origin and customs duties on imports into SACU. The agreement is scheduled to be liberalised over a period of ten years. SACU states received duty-free, quota-free access for all industrial products at entry into force of the agreement.

• On AGOA, Ms Mlumbi-Peter briefed the members in detail. This was enacted in 2001 as a unilateral preferential trade programme provided by the US to 48 Sub-Saharan African countries covering about 6 400 tariff lines. However the US lobbies insisted that some issues of interest to them such as poultry, pork, and beef needed to be addressed for South Africa to remain in AGOA. Top exports from the US to South Africa were machinery and mechanical appliances; vehicles, vessels and aircraft, chemical products, plastics and optical and medical equipment. South Africa’s top exports were vehicles and associated transport, precious metals, base metals, mineral products, and chemical or allied industries.

On poultry, in the first half of 2015 almost 20 US states had Avian Flu and the US demanded that South Africa negotiate a Poultry Trade Protocol to secure continued exports of poultry from those states that were not affected. With regard to beef, a ban was imposed by Cabinet on countries with Bovine Spongiform Encephalopathy (BSE) Mad Cow Disease. The ban was lifted on boned beef from several countries in 2015, including the US. The US has given guarantees that livestock it imports from the third countries would comply with US domestic requirements. On pork, the animal health authorities of both governments have been undertaking the necessary technical work to ensure trade safe from at least three diseases.

Ms Mlumbi-Peter said that United States Trade Representative, Michael Froman, had announced his satisfaction with these agreements. There has been another outbreak of Avian Flu in the state of Indiana on 15 January 2016. South Africa has negotiated and signed a Protocol that governs trade when an outbreak occurs in the US. In each case South Africa’s vets were able to negotiate balanced agreements that took into account the need to ensure safe trade. The contentious issue between the two countries was achieving the appropriate level of protection on animal and public health risk mitigation measures.

Discussion
Mr A Williams (ANC) asked when the DTI mention the movement of business persons what exactly does that refer to. Williams was also interested in the AGOA specifications, he asked how regularly is the meat inspected, and if it had ever been found to not meet the standards.

He also asked why South Africa is having such a hard time accessing the markets of BRICS (Brazil, Russia, India, China). He was also curious about the status of South Africa’s trade benefits. His last question was whether, besides the reduced import duties, South Africa receives any other benefits.

Mr G Hill-Lewis (DA) asked the DTI to comment on the President’s statement that there will be a re-evaluation of all the trade agreements. He suggested that, based on the current circumstances, it might not be a surprise if AGOA is not renewed after the 10 years.

The Acting Chair asked what the DTI has found to be its most difficult challenge in terms of negotiations. He asked what the SACU-India sensitive sectors include, and whether it can be definitively said that AGOA has been settled.

Mr J Esterhizen (IFP) asked about a past meeting in Namibia to discuss tariff offers. He was also curious about the certainty of AGOA.

Ms P Mantashe (ANC) asked how South Africa could hope to right the imbalance since it seems the biggest beneficiary is the EU in the trade agreements.      

Ms Mlumbi-Peter replied on the question of the movement of business persons. Ideally this is meant to aid in the process of these individual receiving travel documents such as visas and a more streamlined protocol that facilitates longer stays, and for persons to move more freely. On the inspection of meat, this falls into the Department of Agriculture Forestry and Fisheries (DAFF) risk analysis. DAFF determines if the standards are not being met and engage the trade partner, at which point the product is either returned or through a mitigation process, the meat can go through the necessary treatment.

On South Africa’s access to BRICS markets, Ms Mlumbi-Peter admitted that there were some difficulties that the country was facing in terms of PTA negotiations. There are currently no BRICS trade negotiations, however, there are engagements in place to negotiate. On trade with the US and the EU, the largest challenge is meeting the standards set by these countries as South Africa may have excess products but attaining the standards is the struggle. It is no longer tariffs that are the barrier for trading. It is for this reason that awareness is important to encourage better utilisation of these trade agreements.

On the question of other advantages and gains for South Africa, Ms Mlumbi-Peter replied that the only benefit these trade agreements allow involves  tariffs.

Ms Mlumbi-Peter specified that although the President did mention a review of all trade agreements, this did not mean changing them or ending them, only reevaluating the implications and benefits. Even then, all decisions to review must go through SACU.

With regard to any strategies after the 10 year date of AGOA, South Africa is focused mainly on looking for ways to better utilise the agreement. In comparison to other Sub-Saharan countries, South Africa is the biggest beneficiary of AGOA. Even then it is not being used to its fullest potential.

On the meeting held in Namibia, Ms Mlumbi-Peter replied that this was not a substantive discussion but rather a first step in the journey to highlight these issues at a ministerial level. It was decided that there will be a retreat in 2016 and then a summit later in the year.

Ms Mlumbi-Peter emphasised that all concerns regarding AGOA could be laid to rest, as the agreement was concluded and finalised. Both the US and South Africa are happy with it, trade must now be facilitated.

She said that the sectors that have been identified as sensitive in the SACU-India agreement were plastics, chemicals, and clothing/textiles.

She concluded by emphasising that concerns revolving around AGOA were not necessarily policy related. The meetings happen bilaterally and as such the critical issues are those of the prints. She then welcomed South Africa’s Ambassador and Special Envoy for AGOA to speak on the remaining matters raised by the members.

Ambassador Faizel Ismail, Special Envoy for AGOA, said that going forward the narrative in talks with the US needs to change. The main focus needs to be on how to use the agreement to get higher value-added products into the US market. He gave the example of some products currently making their way into the US such as lychees, mangoes, avocadoes, and meat products. He highlighted the need for South Africa to put in place a development stage in these talks. He made sure to emphasise that the US State Department is keen on supporting small black owned farms. There is also a lot of potential for increased US investments. South Africa can be used as an investment hub if these trade agreements are utilised to their fullest potential.

Ambassador Ismail informed the members that the US is also very aware that AGOA has a long way to go on the Continent. He concluded by saying that if the US and South Africa work together to help other African countries to utilise AGOA, it could change the entire landscape of trade on the continent.

Protocol amending the Marrakesh Agreement establishing the World Trade Organisation
Ms Nikki Kruger, DTI Chief Director, Trade Negotiations: International Trade and Economic Development, gave a briefing on the Protocol amending the Marrakesh Agreement establishing the World Trade Organisation by including Annex 1A on the Agreement on Trade Facilitation. She provided a brief history of when the amendment was raised for the first time, what the mandate was, and the aim. The provisions in the Trade Facilitation Agreement (TFA) were noted and three provisions were highlighted: Transparency and Appeals; Transit; Import/Export/Transit Fees and Formalities. Also discussed were Section II of TFA: Special and Differential Treatment; additional flexibilities such as the early warning mechanism and the dispute settlement grace period; time frames for implementation and the state of play in South Africa.

The Acting Chair then notified the Committee that they needed to act quickly as some members were to leave the session early and as a result they would be unable to obtain the necessary quorum. It was suggested that they move to adopt the committee report recommending ratification of the Protocol.

Ms P Mantashe (ANC) moved to adopt the report, and Mr G Hill-Lewis (DA) seconded it.

Mr A Williams (ANC) said he had a few questions pertaining to the presentation, mainly with regard to the meaning of Least Developed Country and a Developed Country. He asked who determines these categories, and if they apply everywhere.

Ms Kruger replied that those classifications were designated by the UN. The majority of Least Developed Countries are in Africa. South Africa initially categorised itself as a Developed Country, and as such the commitments it makes are reflected as that of a developed country. Later South Africa designated itself as a developing country. Once a change like that has been made, the engagements you enter are reflected as those of a developing country. Countries such as India and China are currently being challenged on their categorization.

Mr G Hill-Lewis (DA) looked up the definition on the internet.

After the definition was clarified, the Members confirmed their adoption of the report.

The Acting Chair adjourned the meeting.

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