Workshop on African Trade and Regional Integration

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Trade, Industry and Competition

18 September 2019
Chairperson: Mr D Nkosi (ANC)
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Meeting Summary

The Portfolio Committee on Trade and Industry received a briefing from the Trade Law Centre (Tralac) on African trade and regional integration, with specific reference to progress on the African Continental Free Trade Agreement.

TRALAC’s examined the implementation, prospects and challenges facing the Continental Free Trade Agreement, and more broadly intra-African trade. Obstacles to trade included protectionism, lack of infrastructure, the system of rules of origin, illegal attempts to circumvent tariff barriers and the need for standardisation to trade in goods.

Only 17% of trade in Africa was with other African countries and 66% of intra-African trade in goods took place in SADC. TRALAC took the view that regional integration had the potential to be highly beneficial to African trade and the African economy. The overlapping nature of regional integration was understanding that the whole region was in the same boat. Regional integration had the implication of impacting investment decisions dynamically. The logic of regional integration was mutual benefit.

South Africa was creeping towards becoming more protectionist, in line with global sentiment, as well as to protect jobs. Regional integration made sense for Africa. Africa was a large continent with high levels of poverty and unemployment, particularly for the youth. Many countries were isolated from trade routes or land locked. Regional integration could bring increased access to larger markets, supply chains and technology.

South Africa was no longer the largest African economy, but it was the most diverse and best developed, with strong regulatory requirements for finance, and the most robust economy. This meant that South Africa was seen as the best destination for economic opportunity, which drove both investment and migration. The issue of xenophobia was a significant threat and harmed the regional integration agenda. The CFTA was key to South African economic prospects as it created a larger market for South Africa and allowed it to leverage its size and complex economy.

Governments did not trade, but they were vital to securing investment. Governance issues had become incredibly important. The considerations going in to investment required a broad package addressing concerns of governance, economic environment, skills, and policy.

Members’ questions focused on an understanding of the regime of trade agreements currently in force and an examination of South Africa’s current trade strengths and prospects for exploiting comparative advantage. They also asked about the dumping of sugar and protection of the domestic sugar industry and whether South Africa was more protectionist or liberal.


Meeting report

The Chairperson welcomed everyone. He remarked that, especially in light of recent socio-economic challenges, the topic of African integration was especially pertinent.

The Chairperson recalled there was an issue related to Members’ training, wherein members had to submit forms to sign up – he asked members to complete and submit these at the end of the meeting.

Mr André Hermans, Committee Secretary, explained that the matter was being addressed, and new forms had been distributed to members who had not submitted. With regards to the annual reports, nothing was formally tabled, and the tabling would probably happen when Members were on recess. An electronic copy would be sent to members so that they would have a chance to consider it before the meetings of the 8th and 9th of October. The Budget Review process involved the Department of Trade and Industry, the Department of Economic Development, the South African Bureau of Standards and the National Regulator for Compulsory Specifications. The secretariat had submitted the committee programme to the House Chairperson, who was currently in Japan with the Parliamentary rugby delegation, but when approval was given Members would be informed.

The Chairperson moved on to issues relating to the programme of the committee. He asked for a motion to adopt the day’s agenda.

Mr S Mbuyane (ANC) moved to amend and adopt, and was seconded by Ms J Hermans (ANC).

TRALAC Presentation and Discussion

Ms Trudi Hartzenberg, Executive Director, TRALAC, introduced her colleague Prof G Erasmus, Associate, TRALAC.
She indicated that TRALAC wished to have an informal discussion with members. She explained the documents distributed to the Committee. She recalled the comments of Minister Patel on the continuity agreement initialled between SACU and the United Kingdom, continuing that the presentation provided an overview of the SADC Economic Partnership Agreement with Europe, which provided substance for the content of the continuity agreement. She proposed members were welcome to interact with the presentation.

Ms Hartzenberg began with an overview of regional integration and international trade. Why do nations trade, how do they trade and what defines trade in the 21st century? The role of services had become extremely important in 21st century trade. Services account for two thirds of South Africa’s Gross Domestic Product, and are key in facilitating cross-border trade. The presentation would include a brief section on trade policy instruments, another on multilateral trade governance, and a longer focus on regional trade governance and integration, with specific reference to the African regional integration agenda including the African Continental Free Trade Agreement. The CFTA was a unique arrangement due to the coming into force of the agreement before negotiations were finished.

Ms T Mantashe (ANC) asked why the CFTA had come in to place while negotiations were still taking place.

Prof Erasmus replied that trade agreements were legal instruments. Negotiations went on until ratification of the treaty took place. Parliament’s ratification of the CFTA was sent to the depository, and when 22 ratifications were reached, the Agreement came in to place within 30 days. There were many parts of the CFTA that were yet to be negotiated or ratified by other states. Protocols were subsidiary to the broader agreements but were still being negotiated. The reason the free trade agreement came into place so quickly was the political enthusiasm of African states to push this agreement into force.

Mr W Thring (ACDP) asked whether, where ratification had not yet been implemented, a memorandum of understanding similar to the SACU-UK continuity agreement could allow continued trade?

Prof Erasmus replied that this was not the case, because there was a clear legal and historical basis of trade between SACU and the UK based on the SADC EPA.

Ms Hartzenberg noted that the last item included Brexit and would also consider AGOA, which was not a trade deal per se, but was an important component of the trade architecture.

She commenced the presentation itself, stating that trade predated modern sovereign states. Individual states cannot prosper in isolation - trade is essential to prosperity. South Africa’s integration into the African and global economy is absolutely critical, and the increasing importance of African partners in trade made the CFTA key. Africa was a vital market for South African goods and services.  Part of South Africa’s success on the continent was the complementarity of South African distribution services with South African goods.

The Chairperson requested a sense of the entire space the agreement would be looking at, what kind of advantage SA would get from this agreement, and how negative impacts could be addressed.

Prof Erasmus replied that these points would be considered. It was important to emphasise that trade had to be regulated and conducted between sovereign states, especially where goods were traded at lower tariffs and with rules of origin. States were sovereign and this was a conceptual problem – a sovereign states controls its own territory, and controls the movement of goods, services, capital and people within its borders. There were important trade consequences for this sovereignty. Trade agreements had to regulate how sovereignty and trade operated in tandem. One can only trade what others will allow one to trade. International trade had to be accomplished in connection with laws of the host country. The quality of trade governance one was able to bring to this problem was vital for the extent to which one would reap the benefits in a predictable, certain and enforceable manner. Processes relating to counterfeiting, dumping of goods and other illegal trade practices were necessary.

Prof Erasmus noted that figures of billions of rands lost to the fiscus due to the presence of counterfeit goods had been floated. What happened at the border to allow this criminal behaviour to operate freely? Data indicated that South Africa was going backwards in this regard. The trade agreement was only the first step- the governance and enforcement phase that came after this was increasingly important. Parliament played a role in this: international trade agreements are not self-executing. An international trade agreement had to be domesticated. The implementation of a trade agreement required the adaptation of the domestic legal architecture relating to a range of issues including tariffs and standards. The conclusion of international trade agreements was the “fancy” part – but the nuts and bolts of trade were governance and enforcement.

Mr Mbuyane wanted to know whether the trade agreement protected national interest and national security concerns.

Ms Hartzenberg noted the importance of this question in the trade war between the US and China. Animal, food and personal health were key in this matter. The uniformity of product standards was particularly important, given the emergence of foodborne diseases in recent times. However, this could be misused as a technique to protect domestic markets. In the case of the citrus blackspot, it seemed that this was being used to exclude South African citrus exports. Scientific evidence on possible downsides of this issue had to be considered before exclusion of imports could be made permanent.

Prof Erasmus asked Mr Mbuyane for a further expansion on his question.

Mr Mbuyane replied that his question was chiefly concerned with tariffs.

Prof Erasmus answered that many of the tariff exceptions in South Africa’s free trade agreements had been borrowed from the World Trade Organisation, including national security concerns, and these govern South Africa’s trade. The WTO is a rules-based system and operates on the fairness of trade. Most Favoured Nation clauses and domestic non-discrimination of imports by the state were key pillars. There were certain exceptions in this matter. For instance, in terms of the Sanitary & Phytosanitary agreement of the WTO, if there is scientific evidence of processes or origins posing a legitimate threat to national health, these exports can be excluded. Goods dumping is also an anti-trade practice, and anti-dumping duties can be levied.

Article 21 of GATT handled national security concerns, and had been invoked in the military side of national security (in the trade relationship between Russia and Ukraine), for the first time since 1947. GATT allowed for legitimate challenges to unfair trade in terms of its agreement. Formal, detailed procedures govern investigations and collection of evidence in the trade dispute process. For instance, dumping could only be protected against where a competing local industry existed, and there had been harm to the domestic industry directly caused by the dumping of dumped products. More than 50% of the cases in the WTO were about trade remedy measures.

Ms Y Yako (EFF) asked how amenable South Africa was to trade. She was of the view that SA had a lax regime for imports and favoured imports over its exports. She wanted to know about the comparative strictness of SA tariffs, and how its customs operated in regard to the import of goods given the presence of counterfeit goods and dumping.

Ms Hartzenberg stated that the tariff book was essentially a spreadsheet, classified in the Harmonised System for Trade which universalised this classification. The most recent update was 2017. For instance, chapter 22 considered beverages. Every specific product had a code and description, and applicable tariffs. The highest applicable duty was the WTO duty. This was the tariff for South Africa’s trade with China, given it has no free trade agreement with China and trades with it under WTO rules. A proposed tariff cut in the CFTA included a cut in tariffs on items of clothing – the WTO duty was as high as 45%. The reciprocal nature of trade was obvious in intra-SADC trade. Another column in the tariff book would be the exclusions in tariffs, for instance under the Economic Partnership Agreement. At this stage, 3% of tariff lines would be excluded from the CFTA to protect sensitive industries. Once this set of tariff negotiations has been completed, there would be an extra column in the Tariff book for the CFTA, or possibly more than this given possible separate negotiations with, for instance, ECOWAS or Ethiopia. When one looks at tariff negotiations, there were offensive interests (to promote exports to foreign markets) and defensive interests (to protect domestic markets). Ultimately, free trade agreements were about eliminating tariff and non-tariff barriers.

Mr Thring followed up on the matter: was tariff money collected by government?

Ms Hartzenberg replied in the affirmative.

Mr Thring noted the issue of unscrupulous traders who undervalued their products to reduce tariff costs. How did the state prevent that from happening? Obviously, this spoke to existing implementation of South African regulations. In terms of the tariff barriers, if China decided to set up a factory in Mozambique and export products to South Africa under no tariff barriers, what happened?

Ms Hartzenberg agreed that under-invoicing threatened domestic markets and was fraudulent. When SARS examine the risk analysis of a potential exporter, it verifies the history of exports in this product and from this exporter. SARS does a lot of screening of imports to prevent under-invoicing and undercutting of domestic markets. Under-invoicing became such an issue that SARS implemented reference prices for imports, especially in clothing, which fixed the minimum value of certain imports to prevent under-invoicing and loss of revenue. This had implications for both domestic markets and the fiscal health of the state. The trade policy-fiscal policy nexus was key in this regard. If one looks at tariff revenue, it contributes 4% of overall government revenue. The impact on the domestic market was also negative: small domestic producers cannot compete with international imports at undercut prices.

The second issue was rules of origin. Rules of origin certificates are essentially the passports of traded goods. The rule of origin certificate indicates where the bulk of value was added to the product. If a product says it was produced in China, the customs officer will go to the tariff book and determine the applicable tariff, in this case the WTO tariff. If the country of origin is a SADC member, the SADC tariff will be used. The relocation of production to tariff free areas is a key form of industrial policy. Lesotho leveraged its least developed country status under the African Growth and Opportunity Act when it was first promulgated to market itself to international clothing operators who wanted a country that could produce with few tariff barriers.

The Chairperson referred to the Local is Lekker initiative, and asked what South Africa’s internationally competitive products are, and what challenges and opportunities existed in this regard.

Ms Hartzenberg recalled that at a meeting she observed not long ago, a member mentioned that globally 1 in 10 oranges consumed was produced in South Africa. The SA citrus industry was a big success story. SA citrus produced a large variety of citrus. The export of apples from SA to Africa had also risen exponentially. Export of these apples to China and Japan was more difficult due to stringent sanitary and phytosanitary standards. She stressed the need to identify where South Africa was competitive and target policy accordingly. For instance, South Africa is competitive in industrial production of consumer goods within Africa, but not with Europe or the United States.

Ms Mantashe questioned what high tech goods South Africa could not produce to compete with EU/US.

Ms Hartzenberg replied that South Africa could not produce the high-tech goods these economies produced due to a lack of domestic economies of scale. In the Western Cape, the ICT sector was producing services for global economies.

In the case of Japan, tariffs were not high but the domestic market of Japan for fruit production was protected by extremely strict standards relating to issues like the use of pesticides, herbicides, et cetera. Africa was much easier to export to due to less strict standards and the integration of South African producers into South African services and distribution chains on the continent.

Prof Erasmus commented that governments make trade agreements, but mostly do not trade. The government does not sell apples. Therefore, trade policy involved the relationship between government and the private sector. What could government do to facilitate trade, and do something about the criminal side of trade? Under-invoicing is a criminal offence. Were we addressing this problem with significant enough resources?

On the impression that countries want to export to South Africa all the time and that it is import-friendly, he said that reciprocity was essential to trade. If all states wanted as much as possible while giving as little as possible, no trade would occur. But where the issues became salient was in the department of standardisation.

Ms Hartzenberg moved on to trade policy instruments for trade in goods and services. The import tariff was the key trade policy instrument, effective in both protection and collection of revenue. Import tariffs directly impact the price of goods in the domestic market. A 45% barrier in terms of clothing was a high duty and could make imports non-competitive. Often there was confusion over what the import tariff could do. She recalled an example from 2015 on the importance of sugar tariff policy. South Africa was considering an increase in the tariff for sugar which was desired by much of the industry. A woman from the Tongaat area, a land reform beneficiary and woman farmer, complained of the high costs of both labour and electricity which impacted on her being able to cover costs, and thus requested a tariff increase. The imposition of a tariff had a temporary protective effect for a market, but could not solve issues such as electricity prices or labour and productivity problems. The state needed to look beyond just tariffs to help domestic markets.
Mr Mbuyane wanted to know what could be done to prevent the dumping of sugar and protection of the domestic sugar industry.

Ms Hartzenberg said that, if there was an allegation of dumping, a submission could be made to the International Trade Administration Commission to initiate an investigation. This investigation would determine whether dumping was happening, if there was injury to the domestic industry, and if this injury was resultant from the dumping. If this was the case, an anti-dumping duty could be implemented. However, the country alleged to be responsible for the dumping could contest this and take the issue to dispute settlement.

Prof Erasmus stated that Brazil did not need to dump, as it had the water, land and natural resources to supply sugar and soy to the whole world. Brazil’s exports thus were likely to benefit from considerable comparative export advantage, which could not be addressed through introduction of a duty under WTO rules. Sugar was a highly important and complex matter, evidenced by the fact it was the only product that SADC had a separate Annexe for.

Ms Hartzenberg agreed that sugar was extremely important in SADC, especially for small scale farmers, and there was competition between SA, eSwatini, Zimbabwe and Mozambique. This complicated the issue with developmental concerns. Some countries had a natural comparative agricultural advantage for the export and production of sugar. A number of new players in the sugar market had also emerged. In the European Union, the quota system for sugar beet production had been abandoned, and the EU was satisfying much more of its sugar demand domestically.

On non-tariff barriers, there were legitimate public policy instruments called non-tariff measures that helped to protect human/animal/plant health and the environment. However, sometimes these measures could be exploited and become a non-tariff barrier, as in the case of citrus blackspot. Other issues included customs and border processing which could become barriers to trade. TRALAC had attended a meeting the previous day and learned of the slow processing of trade between Zambia and DRC, an example of the increased cost of export not due to tariffs but rather the slow processing of imports and customs sluggishness. South African chemical exporters, who produce highly sensitive and flammable products, suffer particularly from the increased costs and risks of slow processing of trade.

The WTO had agreed to eliminate quantitative trade restrictions, although these still sometimes figured in tariff rate determinations. For instance, SADC could export 110 million litres of wine to the EU duty-free, but after this a tariff was imposed. This combined a quantitative restriction with a tariff.

Trade remedies and safeguards include anti-dumping measures and countervailing measures. Countervailing measures involve subsidisation of an export industry by one country that gives its exports an unfair advantage, which can be countered by legitimate measures if the import market can produce proof this advantage is unfair. Safeguard duties take place where there is a rapid surge in imports of a specific good that threatens a domestic market.

Ms Mantashe asked what instruments could be used to counteract subsidisation of domestic industries.

Ms Hartzenberg noted that only certain types of domestic subsidies were permissible under WTO rules. Even where these subsidies were permissible, they could grant an unfair advantage to these producers in their export markets. If an investigation could prove unfairness, a countervailing duty could be imposed. This issue had to be addressed in a rules-based manner. This would usually come after an application by a producer or group of South African producers to ITAC, which would determine the feasibility and value of an investigation, and then make a thorough investigation if feasible. If ITAC found an unfair advantage, the Minister for Trade and Industry would make a determination, and then National Treasury would have to approve the alteration to the tariff book.

The committee took a short break.

The meeting continued. Ms Hartzenberg proceeded to address the making of trade policy in South Africa. She noted the particular importance of service sector policies, which involved the opening of domestic markets to foreign service providers, and the allowance of establishment of foreign service providers in South Africa (e.g. banks). This was particularly salient in the communications sector – for instance telecommunications sector regulation had a bearing on how many foreign service providers could enter into domestic markets. Sector regulation was key in this regard.

Ms Mantashe asked why domestic markets were not opened by sector regulation, whereas existing companies in telecommunications (some of which were foreign owned) stifled innovation.

Ms Hartzenberg agreed, and added that this was likely an issue for policy makers in the Department of Communication. The Committee should cross reference with the Portfolio Committee on Communications. Sector regulators were key to this sectoral opening. Competition and trade policy had bearing on this issue, but sectoral regulators had much better knowledge of their specific sectors than the DTI. Investment in domestic markets was also somewhat determined by regulation. She used the example of Barclays’ purchase of ABSA.

Ms Hartzenberg proceeded to the multilateral trade governance section.

Prof Erasmus focused on the issue of the WTO: was it in crisis? What could be done? He contended the WTO was in crisis, but that ascribing blame was not key – the change in the global trade environment since the WTO’s implementation in 1995 made it necessary to adapt to the modern global economy. The US-China political crisis in the WTO was a significant threat to the global trade regime. The US’s refusal to participate in the appointment of appellate commissioners meant that the WTO would not have a functioning dispute resolution mechanism by the end of the year. The WTO was not a policeman – it was a set of rules that members choose to adhere to. The WTO did not make specific policies – the members did.

In the same vein, the CFTA was a member-driven initiative that protected the sovereign policy space of African states. African states did not believe in the European supranational approach, given their sensitivity to retention of their personal sovereignty. SADC was the only African Regional Economic Community that had abolished its trade dispute tribunal due to a finding against one of its own members, Zimbabwe. Members had come together and disbanded the tribunal. The Constitutional Court ruled that SA’s participation in this matter was unconstitutional and it was subsequently withdrawn.

Ms Mantashe asked who South Africa could appeal to if the SADC and WTO tribunals disappeared.

Prof Erasmus replied that African countries had not participated in dispute resolution in Geneva as of yet, so first going to the tribunals would be a step. It was not impossible that the long-term future of global trade was a set of ad hoc multilateral bodies. The USA had had an issue with the WTO since the Obama administration due to perceived unfairness and lax treatment of unfair practices by China. The difficulty of global multilateral trade was its nature as a collective of 160 countries with very different needs and interests. The Doha Round of negotiations was not concluded due to disagreements over agricultural subsidies brought on the agenda by India.

Mr Mbuyane questioned what happened to the International Trade Organisation.
Ms Hartzenberg replied that the ITO, agreed to at the Bretton Woods Conference in 1944, was never established due to the US Congress’s disagreements. The GATT was instead signed in 1947, which led to a series of rounds of negotiation on trade. The Uruguay Round was the first round which discussed trade in services. These rounds eventually culminated in the establishment of the WTO, which included GATT, TRIPS and the Dispute Resolution Agreement. SA’s status as an African country allowed it to take on certain exceptions to the Most Favoured Nation policy in regards to regional partners.

She proceeded to discussing regional trade agreements. In considering Regional Economic Communities, the focus is primarily Free Trade Agreements (FTAs), but Customs Unions (such as SACU) are also involved. The CFTA would be an FTA, but the long-term ambition was the abolition of tariffs through the establishment of a continental customs union. The issue here was chiefly rules of origin certificates, which were required to prevent the presence of trans-shipment that undercuts the continental economy by the production of added value outside the customs union but application of continental tariffs on these products. A customs union would also require renouncing independence to independently conclude trade agreements with other partners. A customs union had no tariff barriers to trade within the union. SACU was the oldest customs union in the world: within SACU there were unified customs and excise policies. The only possible taxation on import of goods from member states was the Value-Added Tax differential. The CU also shared tariff policy. These two dynamics required the CU to negotiate all tariffs collectively, relinquishing the member states’ independence to negotiate trade agreements and tariff policy. This had, in SACU, entailed a common negotiating mechanism.

Mr M Cuthbert (DA) asked, given that South Africa was one of the few countries in Africa with a body such as ITAC, what would the implementation of a similar body for the continent look like and was this being considered?

Prof Erasmus explained that ITAC was one the oldest institutions in South Africa. He agreed with Mr Cuthbert that there were only 2 countries in Africa with fully functional trade remedy bodies (or, in WTO terminology, Investigating Authorities). They were only authorised to operate in their own states. However, ITAC also operated in SACU due to the customs union and a decision to that effect. If a continental free trade system was to work, there would have to be a harmonisation of trade remedy bodies. If one wants something similar to ITAC for Africa, all 54 member states of the CFTA would have to legislate for their own investigating authorities. The CFTA chapter on trade remedies held much of the WTO’s policy at South Africa’s insistence. TRALAC had noticed that Zambia and Madagascar increasingly imposed safeguard duties. This was likely because an investigating authority was not required to implement trade remedies - these countries have used customs and treasury institutions to earn rules-based trade remedies. There was a need for African continental trade to be rules-based. This would have governance, legislative, technical and enforcement consequences, but would be good for trade, for the private sector, for investors and for states.

Mr Mbuyane wondered how remedies for the continent would be implemented.

Ms Hartzenberg responded that Zambia had a specific desk for trade remedy applications in its Treasury. After an investigation was initiated, a group of experts were appointed to conduct it. This did not necessarily require government expertise, as consulting companies could equally execute this duty. The WTO safeguard agreement was very clear on how tariff-related investigations must be carried out. The function of the agreement covered all tariff-related investigations including amendment, rebates and safeguard measures.

Prof Erasmus stressed the need not to oversimplify the rules-based system. The real issue in many African countries for trade remedies was the lack of reliable data. How does one prove an upsurge in the importation of a certain good without reliable data, which must come from national institutions that collect, refine and use this data? Without this data, policy-making and remedies became a major issue. Reliability in the collection and capturing of data was key in trade remedies.

Mr Cuthbert noted the mention of Egypt having a similar investigating authority to ITAC – did it also supply investigative services to other countries, if so which? He further enquired whether South Africa was more protective or liberal in its trade. In this regard, was its African trade policy liberal as a means to establish dominance on the continent, but its international trade policy more protective?

Ms Hartzenberg noted that when South Africa joined the WTO in 1995, it made a bold liberalisation promise and substantially reduced tariffs. Globally, countries were becoming more protectionist. South Africa had also become more protectionist since 1999. Globally, it was an open economy, but protected certain industries, especially motor vehicles, textiles and sugar. Recently steel had become an industry targeted for increased tariff protection.

Mr Cuthbert restated his question on whether South Africa was more protectionist or liberal.

Ms Hartzenberg replied that South Africa was creeping towards becoming more protectionist, in line with global sentiment, as well as to protect jobs. However, liberalisation set into place a series of processes that lock South Africa into the global economy. Trade policy was also not the be-all and end-all of economic policy.  Policy linkages were also key – trade and tariff policy alone was not sufficient to address South Africa’s lack of comparative advantage in agriculture, industry or elsewhere. Services also had a place in barriers to trade growth. For instance, port infrastructure was a key deficiency in South Africa’s trade.

The next step in regional integration was the movement to a common market, which liberalises goods, services, capital and labour movement (for instance the European Common Market). In the modern dispensation, many new trade agreements were called “partnership agreements”, which were not purely trade agreements. For instance, the EU-SADC Economic Partnership Agreement included provisions for developmental and technical assistance facilities. To date, South Africa had not used these facilities to enhance its market access.

Ms Hartzenberg proceeded to regional trade governance and integration: the WTO allowed free trade agreements & customs unions under certain conditions. The WTO was not the only body on trade. Another notable body was the Generalised System of Preferences. UNCTAD suggested this body in 1971 to allow favourable market access for developing economies to already-developed economies, in a non-reciprocal arrangement. AGOA was the United States’ GSP commitment. These systems were not robust or rules-based, and there were few formalised remedies when things went wrong.

The Everything but Arms system was introduced by Europe in its relations with LDCs, chiefly ex-colonies, to allow them to export most products (except arms), duty-free, to the EU.

AGOA is the USA’s initiative to allow duty-free market access to African countries. AGOA expired in 2025, and it seemed the USA was targeting an FTA with one or more African countries after its expiry.

All these systems, regional and otherwise, had to be waived by WTO membership as they did not apply to the principle of non-discrimination in trade.

Regional integration made sense for Africa. Africa was a large continent with high levels of poverty and unemployment, particularly for the youth. Many countries were isolated from trade routes or land locked. Regional integration could bring increased access to larger markets, supply chains and technology.

South Africa was no longer the largest African economy, but it was the most diverse and best developed, with strong regulatory requirements for finance, and the most robust economy. This meant that South Africa was seen as the best destination for economic opportunity, which drove both investment and migration. The issue of xenophobia was a significant threat and harmed the regional integration agenda. The CFTA was key to South African economic prospects as it created a larger market for South Africa and allowed it to leverage its size and complex economy.

Prof Erasmus highlighted that 66% of intra-African trade in goods took place in SADC.

Ms Hartzenberg emphasised this point, noting how South Africa was the key trade market in Africa. Intra-African trade only made up 17% of total African trade. This meant that the majority of Africa’s trade was done with the rest of the world (chiefly in commodities, such as cocoa, coffee or gold). SACU held more than half of this intra-African trade. Botswana and Namibia were among SA’s top 8 global trading partners. The SACU market was critical to South Africa. At the same time, there were lots of opportunities in the rest of Africa, despite challenges faced. For example, South African trade with Nigeria had been increasing in recent years – this was chiefly because Nigeria did not have its own petroleum refining capacity. Oil was imported to South Africa and sent back to Nigeria as a refined product. South African small local exporters were struggling to export products to Nigeria. Partly this was because registration to trade in a product could cost upwards of 10 000 USD. Furthermore, the Naira was a thinly traded currency with low foreign exchange reserves, and thus South African business struggled to convert their money to get it out of Nigeria. This forced them into investing money in Nigeria rather than repatriating it.

Mr Mbuyane understood Africa had capacity to move forward intra-African trade – but he recalled that South Africa had declined in terms of its trade advantage in Africa for the last 5 years – he requested an elaboration on this from TRALAC.

Ms Hartzenberg agreed that one could objectively analyse the growth in comparative advantage in terms of growth, employment etc. It was important to relativize this in terms of the continent. Many countries were shaping up fast. Motor vehicle production had spread to Nigeria and Namibia. These other countries were increasing capacity and competitiveness and therefore their trade performance. Some of the 6-7 fastest growing economies were in Africa, chiefly small economies in East Africa. The big economies, Nigeria and South Africa, were actually bringing the average down as they were growing at a slow rate. South Africa had to question whether it was attracting investment and how it was losing out to other countries who had their development pathways and strategies decided on.

Prof Erasmus noted that governance, policies and messages going out from South Africa as a whole was key to its investment and trade prospects, especially in terms of ratings agencies. The ability of the government to solve significant policy stumbling blocks like Eskom was vital to creating confidence, and thus to attraction of investment. South Africa was in a seriously difficult position. A joint plan for South Africa, with resolve and commitment to implement, would have to be created to prevent further slippage. If one watches trucks being petrol bombed in South Africa from another African country, one’s perception of South Africa as an economic destination would decline.

Ms Hartzenberg emphasised that governments did not trade, but they were vital to securing investment. Governance issues had become incredibly important. The considerations going in to investment required a broad package addressing concerns of governance, economic environment, skills, and policy.

The Chairperson highlighted the characterisation of South Africa as diverse, developed and a target of economic opportunity, stressing the need to look at economic opportunity regionally. He proposed South Africa ought to build and invest where it was strongest. Socio-economic issues caused migration, and migration to South Africa was all but an inevitability. This meant South Africa had to create opportunity, knowing where the strong points were, and supporting regional partners where they were stronger than South Africa, to build a strong regional economy. If there is competition across regional borders, the progress in transcending borders would be slowed.  

Mr Cuthbert emphasised that South Africa required labour-intensive, not capital-intensive investment. Investment in finance did not create high volumes of jobs. Job creation was key to development in SA, and was not necessarily being prioritised. Had TRALAC found areas of goods where South Africa could leverage its comparative advantage and find open markets?

Mr F Mulder (FF+) stressed the huge responsibility of the Committee in growing the economy. There were some serious policy challenges the Committee had to discuss and unpack.

Ms Hartzenberg agreed with Mr Cuthbert – just the metrics of FDI would not be sufficient, as quality of investment was also important. Quality of investment involved the kind and number of jobs created. Were there inputs from other businesses involved? Were they domestic or export oriented? The reality was that even Foreign Direct Investment, which used to be very long-sighted, was now much shorter-term. The mobility of investment posed significant challenges. What would be required to keep the investment in SA? This was a critical point that should be considered across portfolio committees.

On opportunities in the rest of Africa, Ms Hartzenberg clarified that these cut across all sectors of the economy. Exports of agricultural products to the rest of Africa was one opportunity, and agro-processing was also a fast-developing industry which many other African countries did not have, thus relying on imports for processed agricultural products. In manufacturing, the motor vehicle value chain was hugely important and could be exploited far more effectively. When it came to trade in services, South Africa had experience and skills in so many areas that it was not capitalising on. South Africa’s mining experience had a long history and deep development. Across the continent, there were some South African engineers and experts involved in mining, but much more could be done. Construction could also leverage the growth of African economies to take on projects – South African construction companies had lost market share here. Chinese companies were enormous in African countries, but had run in to problems. Simply thinking of trade in goods was myopic. ICT services were also key: Cape Town was a global ICT hub.

Prof Erasmus agreed that it was to South Africa’s benefit to have a prosperous and stable region. The overlapping nature of regional integration was understanding that the whole region was in the same boat. Regional integration had the implication of impacting investment decisions dynamically. The logic of regional integration was mutual benefit. Here, the left hand had to know what the right hand is doing. If some areas were creating issues that disincentivised investment, such as job quotas or slow visa processing, investment would not come. TRALAC had run into issues of Home Affairs stunting its ability to organise conferences and workshops. The fact that African integration had been moved to the top of the political agenda was an important development. The political legitimacy that came with this exercise was key.

Ms Hartzenberg expanded on the Tripartite Free Trade Area (TFTA). The TFTA was an initiative from the East African Community (EAC), COMESA and SADC. The current situation was one where ongoing negotiations were focused on SACU-EAC issues (which were progressing) and SACU-Egypt negotiations (which had seen little progress). Kenya was a significant market for South Africa. For instance, the current trade duty barrier for South African exports of furniture to Kenya was 25%, but if TFTA garnered a lower tariff, exports would be more competitive. TFTA had not entered into force. 14 ratifications were needed for entry into force, and only 5 countries had ratified (SA, Rwanda, Kenya, Egypt, Uganda). Again, ratifications were taking place before the finalisation of negotiations.

Ms Hermans asked whether the multiple layers of African integration would not hinder the CFTA’s prospects.

Ms Hartzenberg agreed that the overlapping membership of single states in many RECs added complexity for businesses and had bearing on how trade could be executed. The Tripartite Transport & Transit Facilitation Programme (TTTFP) was also key to regional trade.

The Chairperson brought up the point of transit infrastructure and the possibility of reducing dependence on roads.

Ms Hartzenberg agreed that different goods were suited to different methods. Perishable items like food had time-sensitive transport needs. Low-cost, high-weight products were suited to road and more particularly rail. Transport modalities and different standards were a problem here. Different rail gauges and axle load limits caused inefficiencies in movement of goods.

Prof Erasmus underlined the interconnected nature of trade issues. He recalled the example of an 8-hour power cut at Beitbridge border post which caused a knock-on slowdown of trade for days, due to the unreliability of electricity supply in South Africa. There were certain borders in South Africa where drivers from other countries had to be replaced by South African drivers due to union issues. Socioeconomically, South Africa was integrated – politically, it was not. Forces were at work that prevented the leveraging of mutual benefit through an interconnected region.

The Chairperson highlighted the complex nature of the issues dealt with in the presentation, including water, electricity, transport and other infrastructure.

Ms Hartzenberg made a point about a programme called that allowed individuals at border posts to notify and complain about non-tariff barriers to trade to try and help resolve problems. Where there was no electricity or service, this system obviously could not work.

She moved on to the CFTA. 54/55 African countries had signed the agreement (Eritrea being the exception). 27 had ratified, well past the 22 required. Tariffs, rules of origin and sector commitments in trade in goods and services were still being negotiated, and phase 2 of negotiations (Investment, Competition, IP) were about to start.

Ms Hermans asked why Eritrea had not signed.

Ms Hartzenberg replied that Eritrea was facing a number of quite significant security issues at the current time.

She continued to practicalities: when could South Africa start trading? The goal was for this to happen in 2020, but this may be too ambitious. A lot of work needed to be done. In services, there were 5 priority sectors: finance, communications, transport, tourism and professional services. Negotiations on sector commitments took place on a request and negotiate basis, but this was a slow process. Data was even more of a problem when it came to services. South Africa should be preparing for Phase 2 of negotiations. It was important to keep in mind that RECs continued to operate, and this has a bearing on who South Africa had to negotiate with. South Africa had agreements in SACU, SADC and the TFTA. Therefore, negotiations were focused on North/West Africa.

Prof Erasmus stressed the question of what institutions the CFTA would have. There was a protocol already concluded on dispute settlement. This was easy to settle as there was not one single case of legal pursuance of one African country by another for trade violations.

Ms Mantashe questioned what would happen if an African country were to pursue another for a trade violation.

Prof Erasmus proposed that this would be extremely surprising. He submitted that the question at the base was: why have there been more than 400 disputes in the WTO between states, who do not export goods themselves? His answer was that these states took private concerns seriously. He took a dim view of the likelihood of private disputes being taken up by African states. This was nevertheless a necessity for the creation of a rules-based system of trade.

The CFTA had only the Secretariat in Accra as an institutional body. However, the highest authority in CFTA was the AU Council, which showed high-level political commitment to the CFTA as a flagship programme of the AU. Compliance with standards and dissemination of information were also key to investment and trade within Africa, beyond the issue of dispute resolution. High level institutions were not lacking, but the lower level and specific institutions were in deficit and remained a work in progress.

The Chairperson thanked TRALAC for the presentation and asked for a distillation of the presentation.

Ms Hartzenberg thanked the Chairperson and members. She alerted the members to information contained in pages 6 & 7 of the presentation. To conclude, she stated that TRALAC was committed to the CFTA working. The CFTA was an ambitious and complex task, but there was significant desire for it to work. TRALAC was married to making trade work for African development. She apologised that TRALAC did not have time to talk on Brexit and the SADC EPA but it did have its eye on this. She thanked the Committee for the opportunity.  

The Chairperson thanked the presenters for the informative presentation.

The meeting was adjourned.


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