In this virtual meeting, the Trade Law Centre briefed the Committee on the work of the World Trade Organisation (WTO) and the outcomes of Ministerial Conference 12.
Members heard that in the MC12 outcome document, Ministers committed members to work towards reform of the organisation to improve all its functions through an open, transparent, and inclusive process. The review will be carried out through the WTO's General Council and its subsidiary bodies, with the goal of submitting possible reform proposals to the 13th Ministerial Conference (MC13) due to take place by the end of 2023. There was also an agreement to talks on addressing concerns concerning the WTO's dispute settlement system with the view to securing a fully functioning system by 2024
Members questioned South Africa’s most favoured nations agreements and whether preferential treatment can be passed on to other countries through trade agreements, such as the African Continental Free Trade Agreement. Tralac discussed the international success of South African banking and telecommunications firms. The Fishing Subsidies Agreement, one of the main outcomes of MC 12, was discussed and Members asked whether this Agreement is favourable for developing countries and whether it is truly environmentally sustainable. Some Members also had concerns about the recent lifting of poultry anti-dumping duties and the impact that this would have on local markets.
Members asked about Parliament’s role concerning international agreements and trade negotiations.
The Chairperson welcomed the Members to term three of the NCOP programme, as well as the Trade Law Centre (Tralac). He offered condolences to Mr M Dangor (ANC, Gauteng) in light of his sister’s passing, Deputy Secretary-General of the ANC, Jessie Duarte.
Mr Dangor thanked the chair for his condolences. He said that while it is good that they are looking at the WTO’s MC 12, they should also be looking at other agreements. At times, the European Union (EU) brings forward agreements that have not been agreed to by the African Union (AU). The AU is the primary focus and organ that South Africa is affiliated with. This type of contradictory behaviour needs to be monitored somehow.
The Chairperson said that the Committee would deal with all the bodies and organisations South Africa engages with.
Tralac presentation on the work of the WTO and outcomes of the MC 12
Ms Trudi Hartzenberg, Executive Director, Tralac, and Professor Gerhard Erasmus, Founder & Associate, Tralac, made the presentation.
The WTO agreements are the outcome of negotiations between the member states. Through these agreements, WTO members operate a non-discriminatory trading system that spells out their rights and obligations. The WTO’s top level decision-making body is the Ministerial Conference, which usually meets every two years. The WTO's 12th Ministerial Conference (MC12) occurred from 12 to 17 June 2022 at WTO headquarters in Geneva. Some of the main outcomes are:
- The Agreement on Fisheries Subsidies. This agreement sets new global rules to curb harmful subsidies and protect global fish stocks in a manner that also recognises the needs of fishers in developing and least-developed countries (LDCs). Benefits will be provided to developing and least-developed countries through the WTO Fisheries Funding Mechanism. This agreement will enter into force upon acceptance of its legal instrument by two-thirds of the membership.
- A Ministerial Declaration on the WTO response to the current and future pandemics. This includes a waiver of certain requirements under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) concerning the use of compulsory licences to produce COVID-19 vaccines.
- A Ministerial Declaration on the emergency response to food insecurity and a Ministerial Decision on exempting World Food Programme (WFP) humanitarian food purchases from export prohibitions or restrictions.
- Extension of the e-commerce moratorium. E-commerce driven cross-border trade is subject to customs duties and customs direct taxes at the border, however, DDS cross the border electronically and as such, have not been taxed up to now. This is in accordance with a moratorium adopted in 1998 and the members voted to extend this until MC 13.
Mr Dangor asked what the African Continental Free Trade Area (AfCFTA) agreement's impact on South Africa’s ‘most favoured nation’ agreements. Does this extend to the AU and to African countries? What would the impact be of this? How does the issue of arbitration impact the new agreements?
Mr M Mmoiemang (ANC, Northern Cape) noted the presentation said that that South Africa was a founder member state of the WTO. Is South Africa classified as a developing or a developed country by the WTO? When will developing countries receive the many benefits from their membership in the organisation? The presentation noted that South Africa committed in 1995 to open its services. There have been issues around this, as this has meant that other countries have been allowed to dump their products here, such as American chicken or Chinese goods. Is this a fair consequence of the agreement to remove those trade barriers?
The Chairperson asked about Parliament’s responsibility regarding negotiations and agreements like the Agreement on Trade in Goods, the Agreement on Intellectual Property, and the Agreement on Trade in Services. What is the role of Parliament when it comes to these negotiations? South Africa has agreed to open up competition in industries such as banking and insurance, under the Trade and Services Agreement. Are South Africans allowed to do the same and operate these services in other countries? South Africa lodged a dispute with the WTO. How is this dispute affected now that the UK is no longer part of the EU?
Ms Hartzenberg addressed the question about the AfCFTA first. It is important to note that in the context of the WTO agreements (both on trade in goods and in services) a realistic approach is adopted. The WTO rules allow South Africa to conclude preferential trading arrangements with smaller groups of trade partners, and not extend the preferences to all WTO members. In the case of trade in goods, article 24 of the general agreement on tariffs and trade, and for services, article 5 of the general agreement on trade in services, permits SA to conclude original trade agreements such as the AU’s AfCFTA. In the last 25 to 30 years, there has been a proliferation of those kinds of regional trade agreements. For example, South Africa is a party to the SADC Protocol on Trade in Goods and the Protocol on Trade in Services. South Africa also belongs to the Southern African Customs Union (SACU), which predates the establishment of the WTO. The SADC EU Partnership Agreement has been concluded and following Brexit, SA has also concluded an Economic Partnership Agreement with the United Kingdom. There are ongoing negotiations, for example, with India. This is part of the overall landscape of trade governance. The WTO is where multilateral trade agreements are negotiated and non-discrimination principles are foundational to these agreements. For specifically important trade partnerships, South Africa does negotiate regional trade agreements, usually in the form of a free trade area, which is what the AfCFTA is. Sometimes, it will go further and South Africa will establish customs unions.
Liberalisation of trade in goods was negotiated during the establishment of these regional trade agreements, such as the AfCFTA, which meant that tariffs were liberalised across 90 %t of tariff lines. Once it is fully implemented, the duties on 90 % of tariff lines will be reduced to zero. Article 5 of the General Agreement on Trade in Services (GATS) requires substantial sectoral coverage. In the AFCFTA, there are five priority services sectors. In total, according to the WTO classifications, which are being followed, there are 12 priority sectors. Over time it is possible for South Africa to, for example, request that something be added to the agenda or that partners open to South Africa’s distribution services. Over time more sectors can be substantially covered.
South Africa has opened to trade and services, and this can be seen by the number of foreign banks and insurance companies or services, such as telecommunications, present in our cities. South African service companies are also opening up worldwide, which can be seen just by looking at the African continent. For example, Standard Bank and MTN are well represented across the continent and further. South Africa can trade in different modes of cross-border supply. Services can be offered in one country to clients in another and this transaction does not require travel. This is referred to as cross-border supply, i.e., digitally enabled supply. The second mode of supply involves travel, e.g., tourism.
The third mode of supply, the largest by far, is establishing a commercial presence. This is effectively foreign direct investment. A couple of years ago, MTN invested in Nigeria and established a commercial presence there. When that transaction happened, there was no AfCFTA. At that time, the South African business would have had to go to Nigeria and engage with the regulatory bodies and the Nigerian Central Bank. They would also have needed a license. This highlights the stringent regulations when it comes to cross-border trade and services. Even if a country has not committed to opening its sectors, establishing a commercial presence may still be possible.
An example of this is Tanzania. Tanzania made General Agreement on Trade in Services (GATS) Agreements only in the tourism sector so foreign investors could establish hotels. Yet, in Tanzania, several foreign companies have a commercial presence. The regulatory intensity of services is important and in the case of Tanzania, when the investors requested permission to establish a commercial presence there, the regulatory authority and Ministry would have been involved in the decision. Trade in services behaves differently to trade in goods. The final mode of supply for trade in services is where the service supplier travels across a border to supply services. During COVID, medical professionals from Cuba came to supply services in South Africa. This is mode four supply. There are many domestic regulations that govern this kind of mode of supply. For example, a mutual recognition agreement with the country of origin for those experts would need to be made, so that the qualifications of the doctors could be recognised. Mutual recognition is important because there are legitimate public policy rules about foreign service suppliers. This is why domestic regulation and the regulatory bodies play an important role in facilitating this supply.
A country’s status as a developed or developing country is by self-selection. The WTO does not use the UN classification and does not designate the status of any country.
Prof Erasmus said that it is acceptable and often happens that countries belong to several preferential trade agreements. The AfCFTA says that nothing prevents the state parties from maintaining or concluding trade agreements with third parties. The AfCFTA is actually a preferential trade agreement that will grant preferences only to African states. It is compatible with the WTO and the continuation of existing third-party agreements is acceptable.
Less than 20 percent of the African continent's goods are exported to African destinations. The rest is global trade. Trade with the rest of the world is necessary and Africa cannot consume the goods it produces on the continent all on its own. Excluding trade with the rest of the world would be counter-productive. The AFCFTA agreement explicitly says that in article four of the Protocol on Trade in Goods.
International arbitration between states is a long-standing acceptable form of dispute settlement. States can refer their disputes to the International Court of Justice and specialised courts that they have created. Arbitration is also a form of adjudication. Parties must agree beforehand that the arbitration process will lead to a final and binding result. Selection of the arbitrator takes place when the one party of the dispute nominates an arbitrator and so does the other party. A third one is selected so that there is an uneven number. In addition to arbitration, there is an interstate dispute settlement mechanism. There are international structures for commercial arbitration, where private parties can be involved. There has also been arbitration in the form of dispute settlement about international investment treaties. These other forms of arbitration will continue for those countries that wish to use them. A Protocol on Investment will be adopted in the second round of AFCFTA negotiations. This protocol deals with attracting and promoting investment and protecting the rights of investors and host states. An agreement has not been reached on investor-host state disputes. There is a clear preference on the continent for moving away from international arbitration, where an investor can directly sue a state during a dispute. This debate has been on the agenda for the last ten years, not just on the African continent but elsewhere too.
The dispute mentioned by the Chairperson was made by South Africa against the EU and concerns citrus exports from South Africa. When the SADC EU Economic Partnership was concluded, the UK was still a part of the EU. They have left the EU, but they did negotiate their own economic partnership agreement with South Africa. The preferential trade is continuing under a separate, similar agreement. The dispute was declared a week ago between South Africa and the EU; the UK is not involved.
The commitments South Africa has undertaken concerning trade in services do not relate to the dumping of goods. The dumping of goods is dealt with under the General Agreement on Tariffs and Trade (GATT) and it is true that goods can be dumped in the markets of other countries. The WTO considers this to be an unfair trade practice. The WTO has an Anti-Dumping Agreement and an agreement dealing with subsidies and countervailing measures. It also has an agreement dealing with safeguards. WTO takes note of developments in the field of trade remedies and safeguards. Dumping is not committed by a government but by a firm. The foreign firm sells its goods in a market below normal value. It is unfair because it can be detrimental to domestic industries. The Anti-Dumping Agreement allows a government to investigate complaints about dumping and allows that affected country to take measures, such as dumping duties. There is an active tradition of practices around anti-dumping in South Africa. It is the responsibility of the International Trade Administration Commission. South Africa’s domestic laws and procedures cover this area well. South Africa and Egypt are the only countries on the continent actively using their domestic trade remedies to protect against this issue.
When South Africa joined the WTO, it selected the status of a developed country. Since then, there have been second thoughts about this decision. This is a political issue and he is not the right person to answer that question.
Parliament has an oversight function. It oversees not just through its legislative and budgetary powers, but also its political power and determines what the Executive can or cannot do. The legislature is entitled to be informed as to what these developments are and what the Ministries are planning to do regarding new negotiations. An Executive being aware of this co-habitation will result in the legislature being informed of the various developments. Parliament is entitled to be informed and receive information on the topics discussed in the meeting.
The Chairperson said that he was specifically referring to trade in goods and trade in services. If there are issues, is the Executive obliged to bring them to Parliament for rectification? It has been mentioned that the DTIC is not the only Department or Ministry dealing with these issues. Are these matters also brought to the attention of International Relations and Corporations?
The Chairperson wanted to correct himself. He thought that the dispute against the EU was launched a long time ago. The Committee recommended the NCOP plenary session on the ratification of Southern Africa Customs Union and Mozambique (SACUM)-UK EPA, a trade agreement between Southern African countries and the UK, in 2019.
Prof Erasmus thanked the Chairperson for the emphasis on ratification. There is a separate procedure for this, under Section 231 of the Constitution, which deals with all international agreements. It states that international agreements will become binding for South Africa when it is approved by Parliament. There is a difference between ratification for new international agreements, like the AFCFTA, and the MC 12, which do not necessarily result in new ramifications. The Fishing Subsidies Agreement has a provision that it will enter into force once a certain number of member states have approved of it. If South Africa wants to be a party to that agreement, it will also have to go the Section 231 route.
Mr Dangor said South Africa has a most favoured nations agreement with BRICS, Mercosur, and half of the EU. Does South Africa extend these provisions to the AU? For example, can Egypt extend these provisions to Saudi Arabia?
Prof Erasmus said that the benefits that state members of the AfCFTA are entitled to only apply to the state members. For example, Egypt has an existing agreement with other countries in the Middle East, which concluded five years ago. Under that agreement, it has promised that in the future, if they would conclude a new preferential trade agreement, it would automatically extend such benefits to the countries in the Middle East. There are consequences to making such a promise. If Egypt is under a legal obligation because of a prior agreement to do so, it can extend those benefits. However, if goods come into Egypt from states outside of the AFCFTA, they will not comply with the rules of origin. A free trade area agreement has two pillars: the tariff schedules and the rules of origin. The goods that qualify for preferential treatment originate from the member states of the AFCFTA. For third-party countries, they will never be able to meet the rules of origin. The rules of origin will protect trade among the member states. This does not mean that competition will stop in these areas, an example of this being China’s export of goods to Africa.
Ms Hartzenberg said that the rules of origin play a gatekeeper role. This has to be supported by effective customs and border management. The integrity of our border is important in upholding the rules of origin. Regarding rules of origin, there are still ongoing negotiations in the textile and automotive sectors. Tariff concessions and rules of origin are the minimum requirements for the free trade area. They are a very important focus during the negotiations.
The Chairperson asked how long it would take for two-thirds of the member states to agree to the Fisheries Subsidies Agreement to be adopted. He noted that according to the presentation, this agreement allows fishing fleets to operate longer and farther out to sea. If this agreement is supposed to be environmentally sustainable, how can it allow this? Which countries are donating to the Fisheries Subsidies fund? Have the negotiations of the Fisheries Subsidies Agreement taken the interests of developing countries into account?
What powers do developing countries have to block the extension of the e-commerce moratorium? The majority of member states of the WTO are developing and least developed countries. Doesn’t this give them an edge in decision-making and blocking decisions?
Mr Dangor addressed the issue of country of origin labelling. Agriculture is subsidised, which means that African farmers cannot compete. Should South Africa have a firmer stance on labelling where goods come from, specifically goods that are subsidised?
Mr Mmoiemang said that the anti-dumping rules on chicken had been suspended. It seems like one of the reasons is that the prices have been soaring around chicken, meaning that the affected countries will no longer have restrictions on this. How does this align with the discussion on food security?
Referring to MC 12, the Chairperson asked if any outstanding agenda items will be discussed at MC 13.
Ms Hartzenberg said that the question around origin labelling is why the rules of origin regulations are so important regarding free trade area agreements. There are rules of origin not just in these agreements, but also in the WTO. People need to know the place of origin for every product for various reasons. If something goes wrong, for example, if a Sanitary and Phytosanitary Measures (SPS) issue poses a risk to consumers' health, then one needs to know where that product comes from. For SPS reasons and management of trade remedies and safeguards, the country of origin needs to be known, especially if it is allegedly being dumped in markets. This matter is also related to the bigger issue of subsidisation. Knowing the origin and the circumstances in which the product was produced is really important. In addition to the rules of origin, which have to be effectively implemented, the management of South Africa’s borders is absolutely critical. Analysts sometimes comment that stricter rules of origin are needed to prevent goods from sneaking into the country, but customs and border management also need to be improved for this to be effective. Without doing this, there may be more incentive for irregular trade practices.
When one looks at the countries that initially opposed the moratorium on electronic transmissions, the outcome reflected that they eventually found an agreement on the extension. Decisions are made by consensus. Even though some countries initially raised concerns and considered finding constituencies to block the decision, agreement was ultimately found.
The WTO Director-General is on record as saying that she would like and urging all member states, to accept the Fisheries Subsidies Agreement so it can come into force. She is aiming for this to occur in six to nine months. This is incredibly ambitious, but she said it is very important to come into effect as soon as possible. In some cases, it may take a couple of years or even longer for agreements to come into force. The Director-General is ambitious and really wants to get these outcomes in force. She will put a lot of work into mobilising so that the member states agree to fit her timeframe.
Prof Erasmus said that the previous fisheries agreement, the Trade Facilitation Agreement, took several years before it finally entered into force. If this agreement is approved within one year, that will be a major achievement. The funding will depend on the powers and persuasion of the Director-General. These matters are already receiving attention within the WTO. The fisheries agreement does not make an exception for certain practices and subsidies. It recognises that the state parties must take responsibility. The text of the agreement itself provides for the exact nature of the complications of state parties and the type of subsidies and how they will be phased in over time. There is already a WTO Subsidies and Countervailing Agreement. The fisheries agreement is very specific and deals only with one category of subsidies. The agreement makes sense and suits the purpose of protecting marine life and resources. It is not inherently inconsistent.
Ministerial Conferences such as MC 12 are regular occurrences every two years. The agenda for MC 13 will generate itself and sometimes, these issues will arise at the next conference. Sometimes they will remain on the agenda for years until there is a definite decision.
The WTO is a multilateral forum where decisions are taken based on consensus. There is growing criticism of the consensus decision model for achieving commitments. The consensus model can block certain developments and countries that feel strongly about particular issues will refuse to accept agreements. Part of the political and diplomatic challenge is to keep the balance between the multilateral forum alive with new technical developments and to keep the member states on board to support new developments. It is significant that the WTO could garner sufficient support for the fisheries agreement.
Regarding the strategic initiatives, it is a “complicated game” and not “straightforward, one-way traffic.” The diplomatic challenge is to find a balance between the multilateral picture and the pictures of individual member states. Their various agendas must speak to each other and come to a resolution.
Ms Hartzenberg said that the presentation addressed joint statement initiatives. Since the establishment of the WTO, it has been very difficult to conclude new multilateral agreements. The Trade Facilitation Agreement came into action in 2017, and now there is the fisheries agreement. Other negotiations are still ongoing. Meanwhile, in other cases, the member states have adopted work programmes on newer issues. These include, for example, e-commerce digital trade, investment facilitation, and domestic services regulation. Some members, who have common interests and would like to see these programmes become a negotiating agenda, have advanced in that direction. These are the joint statement initiatives and they are pluri-lateral. They are open to all member states but not all participate. In some instances, members have adopted the position that they will not participate in any joint statement initiative. This is a really interesting development and there have been some outcomes for those member states that choose to participate. This is where the e-commerce agenda has been discussed and is busy developing. It is a development that must be watched carefully as joint statement initiatives reflect the increasing complexities of global trade. It also needs to be watched as some of the issues of these joint initiatives are on South Africa’s own regional integration agenda. Joint statement initiatives are part of the new reality of international trade and trade governance.
Mr Mmoiemang said that the question he asked concerns the government gazette notice issued on 1 August. The gazette focused on the need to combat the food price increase affected by inflationary measures. The International Trade Administration Commission (Itac) investigation led to the suspension of the poultry anti-dumping duties. While liberalising trade policies can help consumers, one of the biggest challenges is the commitment to localisation and protectionist policies. What effect will removing these anti-dumping duties have on local markets?
The Chairperson asked about the role of the WTO public forum and its influence on negotiations.
Ms Hartzenberg said there is no direct link between the discussion at the public forums and the negotiations. The public forms are an opportunity for public actors to engage with and bring new issues to, the discussions about the WTO agenda. For example, Tralac participates in conversations that pertain to the AfCFTA. It is a broad stakeholder engagement event. It is useful because it provides a temperature gauge for discussing particular issues. It is not linked to the agenda the member states bring to negotiations. The member states listen to their constituencies and the citizens back home to develop positions, but it does not necessarily inform their stance.
She apologised to Mr Mmoiemang for not answering his question. The lifting of anti-dumping duties is interesting because it is a trade policy response on a matter that has been considered by Itac, as a result of a request for an investigation of alleged dumping. The Ministry has now reconsidered these duties in light of current challenges and the increasing cost of living. The increasing price of food is causing challenges for millions of consumers in South Africa and globally. This is a very strategic trade policy decision that has been taken in the context of a broader development context and other priorities, that being access to food. It is an issue that the Department will be able to address in full. There would have been an investigation into the potential consequences of this decision before implementing the trade policy change. This is due process.
Ms Elizabeth van Renen, Director: SADC, DTIC, said that if there are specific questions, the Department would be happy to answer them or elaborate on issues that Tralac had touched on.
The Chairperson said that the question raised by Mr Mmoiemang would be best addressed in their next meeting with the Department. He requested the full text of the Fisheries Subsidies Agreement, the Sanitary and Phytosanitary Measures Agreement, and the full list of the MC 12 outcomes, to be sent to the Committee Secretary.
The Chairperson thanked the Members, Tralac, the Department, and PMG.
The meeting was adjourned.
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