Trade update

Meeting report

Introduction by the Chairperson

The Chairperson commended the Committee and announced that there was an official request to the powers that be for the Committee to have a full day on Wednesdays. She would go one on one with ANC Members to remain in the Committee full-time. Contrary to radio reports it was not raining. Some Members spent considerable time in Cape Town, and everyone had to be cognisant of the water scarcity in their own homes. South Africa was internationally classified as a water-scarce country. People had to think of having showers instead of baths.

She wanted to go on record in reminding Members that when there were deliberations on a Bill - all parties had to send representatives. Every party represented a constituency. Today the Department of Trade and Industry (DTI) was to present an update on SA’s trade agreements. It comprised 50 percent of the Committee’s mandate and not enough time was spent on it.

Update by the Department of Trade and Industry on South Africa’s trade agreements

Ms Xolelwa Mlumbi-Peter, DTI, DDG: International Trade and Economic Development Division, said international context showed a backlash against trade liberalisation and globalisation. There was an increase in protectionism in the developed world. Regional integration in Africa was important. Africa needed to shift its consumption and commodity driven growth path to an industrial development path. SA’s engagement with African countries would be affected by a review of the Southern African Trade Union (SACU) agreement. The Southern African Development Community (SADC) represented a market of 277 million people and was expanding. The European Union (EU), as a bloc, remained SAs largest trading partner. SA decided to join the Economic Partnership Agreement (EPA) process between the EU and the SADC EPA group, to establish a regional agreement with the EU and to secure further market access, especially in agriculture, with improved market access for 32 agricultural products, flower exports and fishery products.

SA's objectives as response to the UK leaving the EU, was to ensure that there would be no interruption in trade once the UK left the EU, and to engage towards a Post-BREXIT trade arrangement. The USA was the second largest single country destination for SA exports globally. However the Africa Growth and Opportunities Act (AGOA) utilisation rate for SA was low (8 percent of tariff lines). AGOA expanded duty-free product coverage under the Generalised System of Preferences. Access to AGOA benefits remained risky as the US would use eligibility reviews to help US companies gain privileged access to trade opportunities in African markets. Trade agreements with BRICS countries included the SACU-India Preferential Trade Agreement and the SACU-MERCOSUR (Common Market of the South) preferential Trade Agreement. The World Trade Organization (WTO) context was marked by uncertainty in trade policy. The SA position was to preserve the multilateral trading system towards developmental support.

Discussion

The Chairperson noted, for the benefit of new MPs, that there were two engagements about trade agreements at the beginning of the year. An update was long overdue. The ideal would be a full- day workshop on it, to get to the heart of questions.

Mr D Macpherson (DA) thanked the presenter for an extensive update. He was glad to hear about the proposed SACU review. SA was disadvantaged in how revenue was distributed, as it was the largest contributor. It was an odd situation, and it surprised him that SA was not more forthright in saying it was unhappy with the way matters were. He asked about timelines for the review, and what the goal to be achieved was. He asked if discussions of SACU were relevant. He referred to SADC – in his previous life he was involved with the textile industry. There was a battle about point of origin products from Mauritius that arrived duty- free into SADC. If one looked at the capacity of Mauritian mills and the amount of garments, it was clear it exceeded capacity of Mauritian weave mills. It had to come from somewhere else, to be exported to SA in terms of SADC. It had to be understood how to refine the process, to prevent countries gaining access that did not qualify for duty-free status. SA was severely disadvantaged with products coming into the country from SADC countries that did not in fact qualify. He referred to BREXIT and asked how the DTI viewed the hiatus between when BREXIT came in and a new EPA type deal negotiated. What would happen during the transition period? There had been no discussion from the DTI, the Minister or Dr Fox. It could be two years before the new deal came in, and Britain could be ready to start negotiating. He asked how SA could prepare for the hiatus.

Mr S Mbuyane (ANC) asked about the capacity of SA trade negotiators in deals that could affect the country negatively. There were reports about arrangements with China which allowed the country to bring labour to SA for plant construction. When deals were made, it had to aid development and skills – what is the arrangement? He asked if the DTI pro-actively assessed the need for tariffs, or if it waited for companies to approach International Trade Administration Commission (ITAC). He asked about challenges related to economic partnership integration of Africa, as the EPA sometimes impeached regional economic integration.

Ms P Mantashe (ANC) remarked that she took comfort from the fact that SACU was to be reconsidered and renegotiated. She agreed with Mr Macpherson that SA was currently disadvantaged in the agreement. She asked if business was making use of new market access opportunities for Africa, and if not, what the impediment was. There had been talk for years of developmental integration in SADC. If trade happened within SADC it could cushion the country from being bullied by the EU, and it would protect currencies. SA was vulnerable. She asked what the abilities were for an expanded utilisation rate of opportunities. She asked about BRICS opportunities or challenges for SA. She asked if new trade arrangements could be negotiated. She then asked about challenges related to BREXIT. AGOA was a unilateral preferential trade agreement – how could it be different if AGOA was to be a negotiated trade agreement?

Mr J Esterhuizen (IFP) commented that it was a comprehensive presentation. Political decisions in BREXIT that had global consequences would affect the SA economy. SA was the UK’s largest African trading partner. He referred to the SADC/EU economic partnership agreement. He asked about progress with signing agreements with Britain itself. Referring to AGOA, was it in SA’s best interest to favour the EU over economic participation agreements with the world’s biggest economy? Work towards a full time agreement with AGOA had to be considered. Economic decisions had to be based on SA’s best interests.

Ms Mlumbi-Peter replied to Mr Macpherson and Ms Mantashe that the revenue sharing arrangement was only one component of SACU. SACU countries were important for SA. Botswana and Namibia were among the top 10 of SA’s trading partners globally. The review would move SACU towards enhanced cooperation on industrial development. Currently the biggest component was customs revenue, which was volatile. When the global economy performed badly, there was a drop in that. Stabilisation would be established. It had to be known what to do when more revenue was collected than planned, so that SA could cushion itself. It was not correct to say that SACU had no relevance. All the other SACU countries imported more than SA did. There would be an agenda of sustained development in SACU countries. Money collected in revenue could contribute to cross-border projects. The indicative timeframe was two years. There were technical issues, and middle ground had to be found. Heads of State approved the review in June 2017, hence June 2019 was looked at for completion. The SADC rules of origin prescribed double stage transformation. There was concern about the issues Mr Macpherson referred to, but it was enforcement that was required, rather than issues in the trade agreements themselves. For Mauritius or any other country to get preferential access, it had to go through two stages. There had to be the textile fabric, then the processing of that, and only then the market could be accessed. Loopholes related more to enforcement than to the trade agreement. The chief directorate responsible for clothing and textiles in the DTI discussed issues with the SA Revenue Service (SARS). Work was done with SARS to ensure enforcement of the trade agreement. SADC was called in to review double stage transformation.  Whatever the review looked at, the rules of origin had to support regional industrial development. Other member states felt that because of limited capacities they were unable to take advantage of a bigger SADC market. It had to be ensured that weaker rules were not come up with that would allow third parties to take advantage of the market. The SADC protocol had to provide benefits to the parties.

She answered Mr Macpherson and Mr Esterhuizen about BREXIT saying that the UK would not be able to negotiate new trade arrangements, but there could be discussions with countries with whom there were trade arrangements to look at the rollover and to preserve current levels of trade. A post-BREXIT arrangement could be developed that could be implemented when the UK left. The rollover was not just about changing EU to UK. The first round of discussions to negotiate issues happened in October 2017. There would be further discussions in November, January and February to conclude the post-BREXIT arrangement. The deadline was March 2018, one year before the UK was to officially leave the EU. Ratification processes could be gone through. An arrangement could be in place by 2019. The UK or SA could identify areas where access could be improved. It could not currently happen because the UK was still bound to EU principles. Once the UK left, it would be possible to negotiate better access. The UK would have its own trade policy that would not be sensitive to some of the issues the EU was sensitive to. There could be opportunities to improve market access.

Ms Mlumbi-Peter then spoke to the capacity of trade negotiators - there was a capable team in the DTI, with long experience, who could advance South African positions. There was thorough consultation with the National Economic Development and Labour Council (Nedlac), where the constituencies of business, labour and community were represented, to get a mandate and position, and regular briefs to Nedlac. Offensive and defensive interests were agreed upon.

She answered Mr Mbuyane that when there was cooperation on a project, agreements were not led by trade negotiators but by specific officials with skills in that field. For example, if the US or China wanted to invest in auto, experts from the industrial development division of the DTI and Invest SA would be called upon to look for the best deal for SA. There were consultations with sectors and stakeholders to ensure that South African interests were safeguarded.

She answered Ms Mantashe that the critical issue in ITA was to safeguard integrity of the process so that it was not prone to political interference. Most requests from industry were subjected to a due process of investigation. All interested parties, importers and exporters, in SA and elsewhere, could influence and make the necessary submissions. The Minister had a limited role in terms of the ITA Act. He could make recommendations on the basis of submissions. He could accept recommendations from ITAC but if it were rejected, he could not change recommendations. It had to be subjected to a transparent and open process. He could refer recommendations back to ITAC, to be subjected to another transparent process. It was a case by case evidence based process. Cases that were in the public interest were referred to ITAC. When it came to the ability of business to take advantage of market access opportunities, SA could do better, in her opinion. The DTI engaged with the Export Council to give exposure to market access opportunities. An exporter guide for traders would be developed to have access to information, so that traders could check what the opportunities in trade agreements were. Trade agreements could be bulky and it was hard to understand what was provided for. The exporter guide could address that.

The Chairperson said that she wanted her questions noted, so that broad comments could be made by the DTI in writing, as time was running out.

Ms Mantashe asked how long it would take before guidelines were available. She asked how SA could be cushioned, looking at the fourth industrial revolution, as far as job losses were concerned.

The Chairperson referred to the presentation and noted the Trade in Services protocol was concluded in 2012. Currently negotiations were underway to liberalise trade in six service sectors. She asked for those to be named. In the presentation, SA managed to improve text provisions from what was agreed in Trade Development and Cooperation Agreement (TDCA). She wanted to commend the Department for succeeding after a hard struggle, and it had to continue. She asked for an explanation of the statement that the bilateral safeguard provision would continue to apply indefinitely on all products subject to liberalisation. In the presentation, it was stated that an EPA benefit to SA was improved access for export of flowers. She wished it was stated earlier, as she herself wanted to start a flower farm. The whole GDP of Ethiopia came from flower exports. She asked where the expansion came from, also with regard to fruit.  With the US-SA bilateral trade, the presentation spoke to the AGOA utilisation rate, that SA used 141 out of 1835, or 8 percent of tariff lines. She asked which were used and which not, and why the DTI thought that was the case. The same applied to the 20 percent for Sub Saharan Africa (SSA). The presentation dealt with eligibility criteria for AGOA. It could be withdrawn at a moment’s notice. It was unilateral - SA was offered a gift that could be taken back. She was surprised that it had not been reviewed. She asked for more detail. It was stated in the presentation (takeaways from the 16th AGOA forum) that access to AGOA benefits remained risky. Donald Trump and his administration had to be told that SA created more jobs in his country than any other trade agreement. She thanked the DDG for the update. She told Mr Esterhuizen that space would be carved out for a thorough update in 2018. The next Committee meeting would be on the following Wednesday.

Mr Andre Hermans, Committee Secretary, explained that there could not be a meeting on the Tuesday, as there was a all-day sitting of the National Assembly.

The meeting was adjourned.