COMESA-EAC-SADC Tripartite Free Trade Area agreement: ratification

NCOP Trade and International Relations

08 August 2018
Chairperson: Mr E Makue (ANC, Gauteng)
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Meeting Summary

The Committee was briefed by the Department of Trade and Industry (DTI) on the ratification of the Agreement establishing a Tripartite Free Trade Area (TFTA) amongst the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Community (SADC). The briefing outlined that SA signed the TFTA Agreement in July 2017. Of the 26 members states 22 had signed the TFTA Agreement. The TFTA Agreement would come into force once ratified by 14 member states. Thus far only two member states had ratified the TFTA Agreement. The TFTA was based on a development integration agenda that combined market integration, industrial development and infrastructure development. The TFTA Agreement would amongst others facilitate the harmonisation of trade regimes of member states and allow for the free movement of business persons for limited periods. Potential benefits of the TFTA Agreement to SA included access to new and dynamic markets and there was potential to stimulate industrial development, investment and job creation. There were also potential threats that SA had to be vigilant about such as transhipment and dumping of substandard goods onto South African markets. Measures were put in place to mitigate potential threats. Ratification of the TFTA Agreement would send a strong signal of SA’s commitment to regional integration. 

Members seemed to be unanimous in their support of SA ratifying the TFTA Agreement. Members did however feel that sometimes trade agreements sounded better on paper than what they actually were. The issue was about what benefit a trade agreement could have for the ordinary person living in poverty. Members were a bit concerned that thus far only two member states ratified the TFTA Agreement and questioned how this dilemma would be resolved.

Members were concerned about the smuggling of sub grade products across SA’s borders. The DTI was asked how it monitored third party involvement, how it determined which countries imported products like sugar and steel and the matter of dumping chicken onto SA soil not too long ago was raised. Members asked the DTI what it was doing to protect SA’s markets as locals could lose jobs. Were the supposed protection measures that were put in place as effective as they should be? This was raised in light of the suffering of the SA manufacturing and textile industries due to cheap Chinese imports due to relaxation of tariffs early into SA democracy. There was discussion of the role and capacity of the South African National Defence Force (SANDF) to manage SA’s borders. Other questions centred on the relationship with the World Bank, the International Monetary Fund and the TFTA Agreement, the role of the New Partnership on Africa’s Development (NEPAD) and whether tariff and non-tariff issues brought up by the African Union (AU) had been considered.

The Chairperson placed the Report of the Committee on the Tripartite Free Trade Area Agreement before Members for approval. Members unanimously approved of the TFTA Agreement and the Committee recommended that it be considered by the House. The DA approved of the TFTA Agreement taking into consideration the concerns it raised.

Meeting report

Briefing by the Department of Trade and Industry (DTI)
Mr Wamkele Mene, DTI Chief Director: Africa Economic Relations, stated that the Tripartite Free Trade Area (TFTA) was launched in June 2015. Negotiations around the TFTA Agreement were concluded in May 2017. SA, through Minister of Trade and Industry Dr Rob Davies, signed the TFTA Agreement in July 2017. Of the 26 members states 22 signed the TFTA Agreement. The TFTA Agreement would come into force once ratified by 14 member states. Thus far only two member states, Egypt and Uganda, ratified the TFTA Agreement.

The TFTA was based on a development integration agenda that combined market integration, industrial development and infrastructure development. The TFTA Agreement would, amongst others, facilitate harmonisation of trade regimes of member states and allow for free movement of business persons for limited periods. The ratification request only related to the trade liberalisation element of the TFTA Agreement. The industrial development and infrastructure development elements did not require ratification. Potential benefits of the TFTA Agreement to SA included access to new and dynamic markets, some of the TFTA countries were amongst the fastest growing economies in the continent and there was potential to stimulate industrial development, investment and job creation. The TFTA would also boost intra-regional trade. However there were also potential threats to SA that one needed to be vigilant about. These included transhipment i.e. third party imports gaining access through neighbouring countries as well as dumping of substandard goods onto South African markets. Measures were put in place to mitigate potential threats. Amongst them was effective customs cooperation as transhipment would undermine regional productive capacity and benefits for all participating countries. There was also enforcement of agreed rules of origin to ensure that preferential access was granted to products that met the rules.

Statistics provided showed that SA’s trade with TFTA countries was 16% of SA’s trade with the world. In 2017 total trade with TFTA countries was to the tune of $27.6 billion. Once the TFTA Agreement comes into force, the DTI would request the South African Revenue Service (SARS) to implement preferential tariff treatment. All signatory member states would follow similar procedures to afford South African exports preferential treatment. The TFTA had been used as a basis for engaging in the ongoing African Continental Free Trade Agreement negotiations. Ratification of the TFTA Agreement would send a strong signal of SA’s commitment to regional integration. 

Discussion
Ms M Dikgale (ANC, Limpopo) appreciated that a great deal of research was done on the TFTA Agreement as was evident in documentation the Committee received. As long as the DTI dealt with the issue of barriers she did not foresee any problems. She was in favour of ratification of the TFTA Agreement.

Mr W Faber (DA, Northern Cape) referred to the example that Mr Mene gave regarding sub grade Grandpa Headache Powders that was smuggled through SA’s borders and asked whether the Medications Board did not look into the quality of such products. The DTI was asked how it would monitor third party involvement. How would it be determined from which country imported products, like steel and sugar etc, originated from? Dumping of goods was a huge problem and the bottom line was about making money. He asked what the DTI did to protect SA’s markets. The dumping of overseas chicken in SA caused huge problems. SA’s markets needed to be protected or else locals would lose jobs. He was concerned about the protection of SA’s industries. It was one thing to say on paper that protection measures were in place but it was totally another in practise.

Mr Mene, on the Grandpa Headache Powder issue, said that under international trade law a distinction was made between dumping and substandard goods. The Grandpa Headache Powder referred to was of substandard quality. The customs officials at border posts were not experts on products. Products coming into SA had to be tested and customs officials were not equipped to do testing. On third party involvement he said that rules of origin were negotiated. Action needed to be taken and third parties should not be allowed to enjoy benefits. The DTI took its tariff book into consideration. The product brought into SA was compared to what was in the tariff book. Specifications contained in the tariff book were looked at. The exporter had to meet requirements set out. There was reliance on customs to do the verification exercise. He noted that LG and Samsung had a manufacturing plant in KwaZulu-Natal from which products were exported to Tanzania. Tanzania refused to accept SA as the country of origin for the products as the inputs of the products had not met thresholds. The DTI had consequently invited the Tanzanians to a joint verification exercise. Thereafter the Tanzanians, having been satisfied, recognised the products as being South African and market access was assured. He agreed that dumping was a huge problem. It occurred when a country had excess product which it sent abroad at low cost. The TFTA Agreement had specific rules and procedures to cover anti-dumping. He added that a sub division of the DTI, the International Trade and Administration Commission (ITAC), enforced SA’s anti-dumping rights under the World Trade Organisation (WTO). There were therefore legal protections under domestic and international law. If dumping took place then SA could respond appropriately. The DTI made provision for infant industry protection if they were negatively affected by imports. SA could invoke the protection if need be.    

Mr L Magwebu (DA, Eastern Cape) noted that trade agreements always sounded good but at times one step was taken forward and two steps were taken back when it came to these agreements. The unemployment rate in SA was huge at 27.2% - what benefits or spinoffs there were from trade agreements for the ordinary person living in poverty? From the briefing it was clear that with the TFTA Agreement before the Committee there would only be benefits if 14 member states ratified the TFTA Agreement. Why had only two member states ratified it thus far? How would this dilemma be resolved? The briefing highlighted dumping of substandard goods as a potential threat. He reiterated the point made about poultry dumping that had taken place in SA not too long ago. The DTI was of the view that dumping could be mitigated by effective border management. He said that the Chief of the South African National Defence Force (SANDF) had in the media stated that the SANDF was under-resourced to manage SA’s borders – this appeared on the TV news station eNCA. If this was the case then how was effective border management to be done? The briefing document mentioned legal opinions of the Department of International Relations and Cooperation (DIRCO) and the Department of Justice (DOJC) - were these legal opinions shared with the Committee?

The Chairperson responded that legal opinions were never shared with the Committee. He explained that the DOJC allocated persons to look at agreements and thereafter it went to legal advisers of government if need be. The Committee had confidence in the persons appointed by the DOJC. He was not sure whether the DTI had been privy to the legal opinions.

The DTI provided the Chairperson with a letter from the DOJC addressed to the Director-General of DTI which covered the legal opinions referred to.

Mr Mene explained that the DTI was a client of the DOJC and DIRCO and legal opinions were also received from the Chief State Law Advisers Office. Legal opinions were provided to the DTI as the client. The Minister of Trade and Industry and the Director-General of DTI shared the legal opinions. The legal opinions could be provided to the Committee. He conceded that dumping products onto the South African market could indeed lead to job losses as there would be a spill over effect on the economy. In the Eastern Cape the Volkswagen plant provided 80% of jobs in the hometown of Mr Mene. When vehicles were exported under the African Growth and Opportunity Act (AGOA), employment in this area increased by 10%. This illustrated the direct impact a trade agreement had. There was thus positive impact where SA exported products. The evidence was there. It was not as substantial as one would have liked but it was there nevertheless. It was true that to date only two states had ratified the TFTA Agreement. The benefit would only be seen when the TFTA Agreement was in force. Ratification by states was a sovereign act. Member states that had ratified encouraged other member states to do so. There was an upcoming summit scheduled to take place in Rwanda where the matter of ratification would be raised. He explained that SARS was responsible for goods coming into and out of SA. Practical consideration was done by SARS on a day-to-day basis. He was not sure whether the issue of border management was only related to SARS or only to the SANDF.

The Chairperson said that the Committees researchers compiled two documents that extensively explained the contents of the TFTA Agreement. On SARS he suggested the Committee set aside a day to visit Cape Town’s port to check on the efficiency of the SARS’ operations. It took SARS a total of three seconds to scan an entire container. The scanner cost R20 million.He noted that shipping companies had a legal responsibility to know what it was that they were exporting and importing. There were even legal documents that shipping companies were required to sign. There was also a need for transport companies to take responsibility for consignments they transported. When he had worked at SARS years ago, an initiative was started but he was not aware of where it was at present. At SA’s border posts, SARS, the Department of Home Affairs (DHA) and the South African Police Services (SAPS) had a presence. The SANDF was most likely found more along SA’s borders. He noted that problems around fake and illicit goods had been dealt with. He was impressed by the work that was done at OR Tambo International Airport on the confiscation of drugs. Drugs had even been smuggled in engine parts like pistons. A huge problem for SA was that it had ports and airports where smuggling could take place. Some African countries did not have ports.

Mr Mene confirmed that on goods, SARS was the authority at borders.

Mr M Rayi (ANC, Eastern Cape) urged the Committee to follow up on the statement made by Mr Magwebu around the SANDF lacking capacity - clarity had to be sought on whether there was truth about the SANDF lacking capacity to manage SA’s borders. Of the 26 countries that were party to the TFTA Agreement, who were the four countries that had not signed it? On job losses happening due to foreign goods being imported which affected local industries, he noted that the same thing happened when SA entered its democratic era. SA at the time had relaxed tariffs and as a result a great deal of goods was imported from China. The clothing and textile industries in SA were adversely affected. How could it be ensured that other countries party to the TFTA Agreement had the same good measures in place like SA now had?

Mr Mene stated that the four countries that had not signed the TFTA Agreement were Lesotho, Libya, Eritrea and Mozambique. There could be various reasons for them not signing the TFTA Agreement and one could only speculate what they were. On how to protect sensitive sectors he pointed out that there was the infant industry clause and also anti-dumping measures in place. Where there were import surges, specific provisions of the TFTA Agreement could be invoked. He noted that SA had a number of sensitive sectors. Clothing and textiles was identified as one of the sensitive sectors in the National Economic Development Labour Council’s (NEDLAC) processes.  He said that liberalisation was over a longer period. The DTI did take into account that there could be vulnerabilities in the economy. He added that there would be infrastructure programmes under the TFTA Agreement as was agreed to by heads of state. There would however still be those infrastructure programmes that SA would do independently.
 
Mr M Mhlanga (ANC, Mpumalanga) asked what the working relationships with foras in Africa and the rest of the world was. What was the relationship with the World Bank? Did the TFTA Agreement take into consideration International Monetary Fund (IMF) issues? He also asked what role the New Partnership for Africa’s Development (NEPAD) played. He added that the African Union (AU) had brought up tariff and non-tariff issues. Had the DTI considered these? He was totally in agreement with the ratification of the TFTA Agreement.

Mr Mene responded that NEPAD was a huge part of the Tripartite Free Trade Area and the African Continental Free Trade Area. In a matter of speaking, efforts were now standing on the shoulders of NEPAD. There was a need to complement the programmes of NEPAD. Projects of NEPAD had to be taken into account. He noted that huge progress was made thus far. He conceded that the DTI had not discussed issues around the World Bank and the IMF – this did not fall within the mandate of the DTI but was dealt with by National Treasury. Issues around the World Bank and the IMF would however come up if a country had a balance of payments problem under the TFTA Agreement. In such an instance one could suspend liberalisation. He pointed out that negotiations on the African Continental Free Trade Area Agreement were progressing rapidly and President Cyril Ramaphosa had signed it. It tied into the Tripartite Free Trade Area Agreement. It was important for SA to diversify its export markets.

Mr Faber, referring to additional documentation provided to the Committee, felt that Article 11 provided for a loophole on the non imposition of quantitative restrictions. He asked that the State Law Advisers Office look at the elements of quantitative restrictions in Article 11.

Mr Mene explained that the general rule under international trade law was that there was no quantitative import restrictions unless certain conditions like import surges took place. This was the practise in the WTO and the Tripartite area.

Mr Magwebu, referring to the statement made by Mr Rayi, stated that what he had said about the SANDF was true - On the 31 July 2018, General Solly Shoke conceded that the SANDF had challenges as it was seriously under resourced. He asked in what way the DTI worked with the SANDF.

The Chairperson said that the Committee would not engage further on the matter over the capacity of the SANDF to manage SA’s borders. There were specific Parliamentary Committees which dealt with matters of defence.

Mr Rayi responded that Mr Magwebu made a statement about SA not generally being safe. The Committee needed to follow up on the matter. He said that there was a tendency in some quarters to create stumbling blocks.

The Chairperson was firm about the matter not being discussed further. He placed the Report of the Committee on the Tripartite Free Trade Area Agreement before Members for approval. Members unanimously approved of the Agreement and the Committee recommended that it be considered by the House.

Mr Faber noted that the DA approved of the TFTA Agreement taking into consideration the concerns it raised.

The Chairperson said that the Committee appreciated the stance of the DA but added that it was not only the responsibility of opposition parties to raise concerns. He added that the House Chairperson forwarded a great deal of Memoranda of Agreements to the Committee. It was however up to the Executive to engage on the Memoranda.

The meeting was adjourned.

 

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