South Africa European Union Trade Agremeent, SADC Trade Authority

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Trade and Industry

21 September 1999
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Meeting Summary

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Meeting report

JOINT MEETING BETWEEN THE PORTFOLIO COMMITTEE ON AGRICULTURE AND LAND AFFAIRS; PORTFOLIO COMMITTEE ON FOREIGN AFFAIRS; PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY, AND SELECT COMMITTEE ECONOMIC AND FOREIGN AFFAIRS
22 September 1999
SOUTH AFRICA EUROPEAN UNION TRADE AGREEMENT, SADC TRADE AGREEMENT

 

Documents handed out
Comments on South Africa -European Union Trade, Development and Co-operation Agreement (Appendix 1)
Presentation on the SADC Trade Agreement
Explanatory Note on the Ratification of the SADC Trade Protocol (Appendix 2)

 

SUMMARY
The joint committees adopted a report on the Joint Committees' comments on the European Union (EU) Trade Agreement. Mr Ngwenya and Ms Meyer from the Department of Trade and Industry (DTI) briefed the committee on the progress of the SADC trade agreement. The SADC agreement would be returning to Parliament later in the year for formal ratification. The Joint Committees agreed to invited stakeholders to comment on the agreements. All requests by stakeholders to present oral submissions need to have been received by the chairperson, Mr Rob Davies, before October the 15th.

 

MINUTES
South Africa European Union Trade, Development and Co-operation Agreement
The Chair, Mr Rob Davies, informed the joint committees that a few changes had been made to the comments on the South Africa European Union Trade, Development and Co-operation Agreement. The key changes related to the committees having decided to request briefings from the DTI on the implications of the agreements and practical measures that have been taken to ensure South Africans can maximise their interventions into the EU markets. The changes and the agreements were accepted by all present.

The Chair noted that the document committed the committees to hearing public comment on the Trade Agreement closer to the time during which Parliament would need to ratify the agreement. The committees would place advertisements for public comments. Specific issues, such as the preparation of the South Africa economy, the impact of the World Trade Organisation (WTO) etc would be covered. The deadline for stakeholders to the let the committees know they would like to make comments would be the 15 October.

Mr Moosa (MP) noted that stakeholders should also be asked to deal with the state of readiness of the South Africa economy and South Africa to maximise the South African interventions into the EU markets.

 

The SADC Protocol on Trade
The Chairperson introduced Mr Sifiso Ngwenya, the Director of South Africa Trade, DTI, and Ms Marina Mayer, Deputy Director of SADC Trade Relations.

Mr Ngwenya presented the background and key objectives and agreements in the SADC Trade Protocol. The Trade Protocol was adopted in 1996. During 1997 and 1998 agreement on concepts, such as the asymmetry of tariffs between South Africa and the other parties, was negotiated. In July 1998 Cabinet approved the offer of the Southern African Customs Union offer to the negotiations. From January 1998 to September 1999, 8 negotiating rounds were set up. In September 1999 Cabinet approved the tabling of the SADC Protocol on Trade to Parliament for Ratification. The aim of the Government would be to implement the agreement on the 1 January 2000.

The key objectives of the Protocol are to:

  • Create a duty-free trade area in 8 years. South Africa would remove all import taxes within five years.
  • Develop integrated industrial and agricultural strategies for international competitiveness.
  • Promote efficient production within the SADC region reflecting current and dynamic economic growth levels.
  • Enhance the economic development, diversification and industrialisation of the region.

The main provisions in the Trade Protocol were:

  • Elimination of tariff and non-tariff trade barriers, subject to general exceptions in 8 years.
  • Agreements on non-tariff issues of rules of origin, co-operation in customs administration, trade facilitation's, trade remedies in connection with anti-dumping measures, promotion of cross border investment and trade in services, promotion of intellectual property rights and competition policy, trade relations with 3rd parties and institutional arrangements and dispute settlement.

For South African purposes, the South Africa Revenue Service (SARS) would be charged with administrating the South Africa-EU and SADC agreements. A joint DTI and SARS task team was established to implement the new systems, and sub-committees set up to look at issues of policy, legislation, human resources, budget and operational procedures.

Similar sub-committees had been set up between the SADC partners to look at customs issues within the region.

The rationale behind the offer of South Africa as a part of the South African Customs Union(SACU) was to recognise the current trade imbalance with the other countries within the region. South Africa imports R2.2 billion worth of goods, and exports R15.6 billion. The agreement also aims to increase the expenditure of South Africans in investing in the region. South Africa's exports to the region are concentrated in high-value added manufactured goods, whereas South Africa's exports to the rest of the world are concentrated in primary products. Therefore the agreements aims to support the manufacturing sector. South Africa acknowledges that unless the region grows, South Africa's exports and domestic employment would not grow. Economic growth in the region would deter socio-economic dislocations in the regions. Therefore SACU would open its markets rapidly and asymmetrically to SADC countries.

The SACU offer included an immediate liberalisation of 69% of trade to South Africa. Gradual Liberalisation would occur on goods that had higher import tariffs, and 3% of the trade would be classified as sensitive.

The negotiations had reached agreement on the rules of origin sections, and the timetables for the tariff liberalisation. Areas where agreement had not been reached include the product specific rules of origin for clothing, textiles and footwear, on the differentiated tariff offers from non-SACU SADC members, the coverage of the trade offers in terms of how much of the trade between the countries was covered by the agreement, and the timing of tariff reductions.

The final Trade Negotiating Forum in would be held in October. At the end of October a Ministerial meeting would be held to resolve outstanding issues. The protocol would then need to be ratified by Parliament, and the implementation would begin in January 2000.

Parliament would need to ratify the original protocol, the tariff liberalisation protocols, the rules of origin, and South Africa's decision to implement it's own liberalisation even if comprehensive agreement had not been reached.

The members were invited to ask questions before the meeting was closed.

Minutes supplied by CONTACT

 

Appendix 1

COMMENTS ON SOUTH AFRICA-EUROPEAN UNION TRADE, DEVELEPMENT AND CO-OPERATION AGREEMENT

By

National Assembly Portfolio Committees on Agriculture & Land Affairs, Foreign Affairs and Trade & Industry and National Council of Provinces Select Committee on Economic and Foreign Affairs.

On September 17 1999, the Committees were briefed by the Department of Trade and Industry on the South African-European Union Trade, Development and Cooperation Agreement (TDCA). At that meeting, we were invited to submit any comments before the official signing scheduled for October 11 1999. The Committees appreciate this opportunity to offer some initial observations. At the same time, we need to re-iterate our commitment, once the Agreement is formally referred to us for ratification, to holding public hearings and reporting to Parliament on any further pertinent points that may arise from these.

1. Scope and Content of the TDCA

The Agreement with the European Union is of major strategic importance for South Africa. The European Union (EU) is South Africa's major trading partner if imports and exports are added together - although neighbouring SADC member countries remain our largest export market. The EU and EU member countries are also our most important development cooperation partners. The TDCA is a comprehensive, multi-faceted agreement that deals, inter alia, with trade, development cooperation, political dialogue, sectoral cooperation and trade related matters.

South Africa's objectives in negotiating an agreement with the EU included:

 

(i) to secure improved terms of access for South African products into the EU market and narrow the trade imbalance running at around R 17 billion in the EU's favour.

(ii) to remove the discrimination against South African goods in EU markets that resulted from the fact that the country had been excluded during the apartheid years from a range of preferential trade arrangements the EU had been developing with various countries;

(iii) to respond to the offer made by the EU shortly after our first democratic elections in 1994 to develop a new relationship that could contribute to economic growth and development, and thus to the strengthening of democracy, in South and Southern Africa.

 

In the course of the negotiations, agreement was reached on a number of principles that needed to underscore trade and other aspects of the agreement involving reciprocity. These included:

 

(i) a trade agreement should be both "asymmetrical" and "differentiated", that is to say constructed in such a way that the weaker partner (in this case South Africa) should have more time to implement less onerous tariff phase downs than the stronger partner (the EU).

(ii) note would have to be taken of the SADC trade protocol providing for the negotiation of an FTA in SADC within 8 years; an FTA with the EU would have to allow a margin of preference, at least for a period of time, for products from SADC countries seeking access to the South African market over competing products from the EU.

(iii) an agreement would have to contribute positively to promoting economic growth and development in both South and Southern Africa, and hence be a Trade, Development and Cooperation agreement.

2. The Trade Agreement

 

A major feature of the TDCA is a reciprocal Free Trade Agreement (FTA) compatible with World Trade Organisation provisions in this regard. The agreement provides for the EU to remove duties on imports from South Africa on approximately 95% of its tariff lines over a period of ten years from implementation (scheduled to begin on January 1 2000). In return South Africa will be required to remove duties on around 86% of its imports from the EU over a period of up to 12 years in a few cases. As such the Agreement both offers opportunities and poses challenges to South African producers.

The opportunities appear to be most evident in respect of industrial products. Most industrial products produced in South Africa, which qualify under the rules of origin, will be able to enter the EU market duty free within three years of the implementation of the agreement i.e. by the end of the year 2002. There is no doubt, in our view, that this, will open up several exciting prospects for South African manufacturers (including many that are not currently exporting to Europe). Producers of steel and steel products, ferro alloys, aluminium products, furniture and automotive products are, among, potentially significant beneficiaries of this agreement.

The FTA, unlike most comparable agreements the EU has reached with other countries, also significantly includes agricultural products. In the course of the negotiations, the EU was persuaded to reduce the list of agricultural products it wanted to exclude from schedules of products subject to tariff phase downs, and to grant certain tariff concessions on products on the re-named "reserve list", e.g. 60.000 tons of canned fruit (one of the EU's most sensitive products) will be allowed to enter at half the MFN duty. As a result, the percentage of agricultural products wholly excluded from the agreement was reduced from 46% of South Africa's current agricultural exports to the EU to around 26%.

This was a significant achievement, which means that the TDCA will also create a number of new opportunities for exports of agricultural products. At the same time, it is clear that this Agreement has only partially addressed problems for South African agricultural exporters created by the protectionism and unfair trading practices associated with the EU's Common Agricultural Agreement (CAP). For example, several of the agricultural products that are included - particularly those where South Africa is currently competitive - are either "backloaded" -meaning that tariffs would only begin to be phased down towards the end of the ten year implementation period - or given only a tariff quota. Moreover, while the Agreement is almost unique in acknowledging the potential distorting effects of EU export refunds (subsidies) on agricultural markets beyond the borders of the EU and in allowing South Africa to impose a special agricultural safeguard, many other related issues (such as export refunds in third country markets) are not dealt with. Much of this, in our view, derives from the fact that the Marrakesh Agreement condoned many such practices by developed country regions to the prejudice of developing countries.

Arising from the above, we make the following observations and recommendations:

 

(i) Transforming the theoretical advantage of lower tariffs in the EU market into the real benefits of increased exports to the EU will depend on proactive steps being taken by both exporters and government. Turning such advantages into real benefits will require the careful identification of real opportunities in the highly competitive EU market, as well as taking steps to get to know the rather strict rules of origin that apply in this Agreement and the documentation required. We are aware, and appreciate, that the DTI is involved in a programme to alert potential exporters to what is required in this regard. We believe that there is an urgent need for actual and potential exporters to prepare themselves now to take advantage of available benefits. Consignments that do not meet the rules of origin, and/or are not accompanied by appropriate documentation, will not be able to enter the EU on the preferential terms available under the Agreement. We should assume that many EU exporters interested in entering the South African market will get their act together. If South African exporters do not, the asymmetry achieved through hard bargaining in the text of the Agreement may become eroded in practice, or even turned into further asymmetry in the trade balance in favour of the EU. During the hearings we plan to hold in connection with the ratification process, the Commitees would appreciate being briefed on what practically is being done to prepare to implement the new procedures that will be required by the Agreement.

(ii) The limitations on agricultural exports evident in the TDCA derive, as indicated above, from the fact that protectionist and unfair trading practices by developed country trading blocs in sectors where developing countries, including our own, are currently competitive were condoned by WTO Marrakesh Agreement. This, in our view, underscores the need for a major breakthrough in addressing such issues in the WTO's Millennium Round of negotiations due to begin in Seattle in December this year.

(iii) The reciprocal nature of the trade agreement means that we have accepted the obligation to open up over time a sizable part of the South African market to duty free imports from the EU. We appreciate the fact that the principles of asymmetry and differentiation, which our negotiators insisted on, have enabled us to exclude a larger range of sensitive sectors than the EU. We are aware, too, that our offer was carefully prepared through extensive consultation with stakeholders, and that the Agreement makes provision for a number of safeguard measures to deal with unpredictable surges in imports. The tariff removals provided for in the Agreement will, nevertheless, be likely to pose a major challenge to several sectors. Sectoral strategies will need to be reviewed to take account of this Agreement. In the course of the hearings we anticipate holding prior to formal ratification, we would hope to hear from stakeholders in this regard.

iv) The schedules of tariff reductions and derogations in the Annexures, while comprehensive and perhaps necessary in this form in a formal treaty, are not as they stand particularly user friendly. We would recommend the production of a document that makes it clearer to the ordinary reader how broad industry categories or product lines will be treated over time in the respective markets under the FTA.

 

3. Economic and Development Cooperation

The TDCA provides for extensive cooperation between the EU and South Africa in a range of economic sectors as well as in addressing South Africa's developmental challenges. Among the sectors indicated as areas of "economic cooperation" are:

industry, investment promotion and protection, trade development, SMME development, telecommunications and information technology, postal cooperation, energy, mining and minerals, transport, tourism, agriculture and science and technology. Development cooperation is intended to prioritise "operations...which help the fight against poverty", expand employment and focus on "the basic needs of the previously disadvantaged communities and reflect the gender and environmental dimensions of development" (Articles 65 and 66). The Agreement provides for a Multiannual Indicative Programme based on priorities negotiated between the two parties. The Committees are generally satisfied that these provisions will provide the basis for a firm, multifaceted cooperative relationship between the two parties that will benefit the promotion of economic growth and development in South Africa.

The Committees note that Article 62 obliges both parties to undertake to complete a "mutually beneficial" fisheries agreement "as soon as possible", as well as to reach final agreement on the "new names" for Port and Sherry products trading in each other's markets at the end of twelve years. These were difficult issues in the negotiations. The Committees express the hope that in seeking to resolve these issues in future discussions, the developmental principles and objectives both sides say they are seeking to promote through this Agreement will not be swamped by commercial haggling by powerful vested interests in the EU.

4. Implications for SACU, SADC and the ACP

The TDCA will, as negotiators on both sides recognised, have important implications for our partners in the Southern African Customs Union (SACU), the Southern African Development Community (SADC) and the African, Caribbean and Pacific (ACP) grouping.

Our partners in SACU i.e. Botswana, Lesotho, Namibia and Swaziland - will be most directly affected by the Agreement. These countries are part, together with South Africa, of a customs union with a common external tariff. Tariff arrangements negotiated with the EU will, thus, apply to EU imports throughout the SACU common customs area and the BLNS countries will be affected by the sizable increase in the categories of EU goods entering the SACU market duty free. Various impact studies have suggested that the impact on firms in the BLNS countries, whether producing for the domestic or South African market, will be slight. All agree, however, that the effect on the SACU customs duties revenue pool, on which several BLNS governments depend for a major part of their revenue, could be significant.

The TDCA itself says very little about the impact on the BLNS. One of the recitals in the Preamble refers to "...the Parties' commitment to ensure that their mutual arrangements do not impede the process of restructuring the Southern African Customs Union, which links South Africa to four ACP states". Another provision (Article 22.2) provides for consultation in the Co-operation Council concerning "...adjusting customs unions or free trade areas", if required.

However, various EU officials have repeatedly committed themselves to taking account of the impact of an FTA with South Africa in making financial allocations to BLNS countries, as well as to providing other assistance to ensure that these countries are not negatively affected. A major challenge facing South Africa, in our view, is to act to ensure that such commitments are followed up.

SADC countries that are not members of SACU will be less directly affected. The main issue here appears to be to ensure that producers in SADC countries enjoy a margin of preference in the South African market, at least for a period of time, over those from the EU. Trade negotiations have been taking place in terms of the 1996 SADC Trade Protocol. However, while considerable progress has been made, it is unlikely that they will be concluded in time for implementation to begin at the same time as the TDCA with the EU - scheduled for January 1 2000. In view of the importance of ensuring that we are seen to give due priority to our relationship with SADC, government has indicated its desire to unilaterally implement the first phase of its offer on January 1 2000. The Committees will be asked to pronounce on this matter definitively in due course.

The negotiation of the TDCA has coincided with the initiation of negotiations between the EU and ACP countries on a successor agreement to the Lome IV convention. We are aware the EU'S preferred model for a successor agreement top Lome IV is Regional Economic partnership Agreements (REPAS), a key feature of which would be WTO compatible reciprocal trade agreements. We are also aware that ACP countries have not committed themselves to REPAS, and many believe that a move to reciprocity is premature and does not address the real problems ACP countries are facing in improving their position in the EU market.

In this context, the Committees believe it 'is important for South Africa to stress that it does not regard the TDCA as a model for those negotiations. There would indeed be much that is ironic if it were to become so. South Africa embarked on the negotiations leading to the TDCA because its initial request for inclusion on certain terms in the Lome trade chapter was rejected by the EU, on the grounds that South Africa was a non-typical ACP country.

The TDCA needs, in our view, to be seen as a bilateral agreement reached between the EU and a relatively industrialised developing country. As argued earlier, as a trade agreement its main potential benefits to South Africa lie in manufactured goods that most ACP countries do not produce or export. The TCDA remains restrictive, albeit to a much lesser extent than comparable "association agreements" with Mediterranean counties, in agricultural products and agro-industries, where most ACP countries need to begin their struggle for development and industrialisation.

While not a model, the TDCA can be an important source of lessons for the ACP countries. It is the product of hard and lengthy bargaining, in which haggling to promote the vested interests of various EU lobbies often held sway over the professed intention to promote growth1 development and democracy in the developing world. The demands on capacity, both in government and civil society, were also significant. A major challenge will be to dissect the lessons at various levels and take them into the ongoing negotiations between the EU and the ACP.

 

5. The Role of parliament in Implementation

 

The Committees take note that Article 97.4 commits both parties "to encourage and facilitate regular contacts between their respective parliaments on the various areas of co-operation covered by the agreement". The Agreement also provides for the establishment of a Co-operation Council to oversee implementation. The Committees look forward to further discussion with government and the Co-operation Council on ways to give effect to the provisions on parliamentary contacts.

 

Appendix 2

 

1. Introduction

 

The purpose of this explanatory note is to guide both the Portfolio Committee in the National Assembly and the Select Committee in the NOOP through the documentation submitted in support of the ratification of the SADC Protocol on Trade. The full text of the trade protocol, the rules of origin contained in the offer of the Southern African Customs Unions, the tariff liberalisation schedule and the Memorandum of Understanding on Standards, Quality Assurance, Accreditation and Metrology are attached hereto.

The objectives of the SADC Protocol on Trade are to:

 

· create of a duty4ree trade area over a period of eight years;

· develop integrated industrial and agricultural strategies for international competitiveness;

· promote efficient production within the SADC region reflecting the current and dynamic economic growth levels; and

enhance the economic development, diversification and industrialisation of the SADC region.

2. Background

 

The SADC Protocol on Trade was signed by the Heads of State or Government during the Summit in Maseru in August 1996. It was signed as a framework document providing basis for economic integration through the creation of a Free Trade Area

For the Protocol to enter into force, it has to be ratified by at least two thirds of the

Member States. It has currently been ratified by five Member States, namely, Botswana, Mauritius us, Namibia, Tanzania and Zimbabwe. It is now being processed for ratification by the following countries: Lesotho, Malawi, Mozambique, South Africa, Swaziland and Zambia.

In order to be ready for implementation, the Protocol needs to be supplemented by a schedule for tariff elimination and an appropriate set of rules of origin. The comprehensive tariff offer and supplementary rules of origin offered by South Africa, together with her SACU partners, are attached hereto for consideration.

After thirteen rounds, the trade negotiations have now progressed sufficiently for us to be confident that the final outcome will largely mirror the offer that SACU has tabled. It is, however, expected that the offers of the other countries, particularly Mauritius Tanzania, Zambia and Zimbabwe will be improved further in the next rounds in order to enhance the total trade coverage ahead of the next Ministerial meeting scheduled for October 1999.

Regarding the rules of origin, the SADC Ministers on Trade agreed in Gaborone, Botswana on 15 July 1999 on well-defined rules of origin that would help stimulate economic activity in the SADC region, enhance value-added processing and circumvent the trade of illicit or counterfeit goods and the fraudulent supply of third party goods. These views are in line with the SACU proposals on rules of origin.

It is now agreed that all primary products, including agriculture products, should be wholly obtained from each Member State. It is further agreed that processed industrial products can acquire originating status provided that the imported materials have undergone sufficient transformation such that:

 

(i) the c.i.f value of those materials does not exceed 60% of the total cost of the materials used in the production of the goods; or

(ii) the value-added resulting from the process of production accounts for at least 35% of the ex-factory cost of the goods.

 

The following sectors: processed agricultural products, textiles, clothing, leather, footwear and auto industry will require specific list rules detailing sufficient processing and substantial transformation to confer an originating status as proposed in the rules of origin attached in the accompanying documents.

The Protocol also provides for safeguard measures against unfair practices. In such instances Member States would have recourse to take anti-dumping action and apply counter-vailing measures to import trade that distorts fair competition. It also prohibits the granting of production and export subsidies that may distort or threaten fair competition.

It is proposed that products benefitting from direct and actionable subsidies that may distort fair competition, including export subsidies such as export processing zones should not be granted preferential treatment under the Trade Protocol.

Similarly, Member States are required to notify the non-tariff measures that they apply in their trade policies and to make firm undertakings on the removal of those that distort or prohibit trade. In this regard, the removal of trade-distorting measures in agricultural trade such as quantitative import and export control, single channel marketing and price controls is an urgent matter that still has to be finalised in the negotiations.

Agreement has also been reached on a Memorandum for Standards, Quality Assurance, Accreditation and Metrology (SQAM) and the creation of sub-committees to foster cooperation in customs administration and trade facilitation, including such areas as the harmonisation of technical and regulatory standards, sanitary and phyto-sanitary measures, simplification of documents and procedures, inspections and joint investigations. The attached memorandum will be submitted for signature to the Council of Ministers when it next meets in January 2000.

The implementation of the SADC Protocol on Trade requires effective coordination and improved efficiency of SADC institutions and an increasingly leading role by Member States in driving the process forward, in monitoring and in maintaining a close liaison with one another. This raises, in a broader context, the urgency of institutional reform and rationalisation of SADC with Member States providing political leadership and the requisite technical support.

In light of the above, Cabinet has approved the tabling of this Protocol on Trade for ratification by both Houses of Parliament in term of section 213(2) of the Constitution of the Republic of South Africa, 1996 (ACT 106 of 1996) (the Constitution)1 during the First Session of the Second Parliament of the Republic of South Africa.

 

3. Summary of the Most Important Provisions of the Protocol on Trade

 

Part One, covering Articles 1 and 2, deals with definitions and objectives.

Part Two, from Article 3 to 11, provides for the elimination of tariff and non-tariff barriers to intra-SADC trade, and allows for general exceptions on grounds of public morals, public order, health, safety and security considerations.

Parts Three and Four, comprising Articles 12 to 21, provide for rules of origin; cooperation in customs administration; trade facilitation; cooperation on technical standards, sanitary and phyto-sanitary regulations; as well as trade remedies such as anti-dumping and counter-vailing measures.

Parts Five, Six and Seven, covering Articles 22 to 26, deal with trade-related issues such as the promotion of cross-border investment; trade in services; intellectual property rights; competition policy and trade development.

Part Eight, Articles 27 to 30, regulates trade relations, including preferential trade agreements, coordination of trade policies and cooperation with third parties.

Part Nine, Articles 31 to 39, provides for institutional arrangements and dispute settlement procedures, the ratification process and the depository of the instruments of ratification.

 

4. Implications for the South African Economy

 

There are three implications of the implementation of the SADC FTA for the South African economy:

 

An increase in trade flows between South Africa and SADC countries as well as dynamic impacts from higher investment flows to the region;

· A reduction in tariff revenue derived from imports from SADC countries; and

· Institutional restructuring of the South African Revenue Services to develop capacity to administer the SADC FTA

 

As regards increased trade flows, current trends suggest that in the short to medium term, there is unlikely to be a substantial change in such flows. Trade with SADC countries has increased dramatically during the period 1990-1998. Imports from SADC increased from R61 I million (less than 1% of total imports) to R2.2 billion (in excess of 2% of total imports) during that period. The increase of South Africa's exports to the region was even more dramatic - from R3.5 billion in 1990 (5% of total exports) to RI 5.6 billion in 1998 (11% of total exports).

At present, the ratio of South Africa's exports to imports stands at 7:1. Our exports to the region are concentrated in the high value-added sectors such as minerals and base metals, chemicals, machinery, transport equipment and food and beverages. These sectors generate overall growth and high-wage formal employment in the domestic economy and their exports to SADC have grown dramatically - tripling between 1992 and 1998.

In aggregate, SADC imports account for a mere 2.% of South Africa's total imports. The low levels of current SADC exports to South' Africa coupled with structural constraints to the expansion of production suggests that in the short- to medium-term tariff liberalisation to SADC is unlikely to have a marked negative impact on the South African economy.

An analysis of SADC imports as a proportion of South Africa's effective market (defined as domestic production less exports plus imports) demonstrates even more starkly the limited impact the trade offer will have on South Africa's economy: in aggregate, in 1998 SADC imports accounted for a mere 0.25% of South Africa's domestic market.

In the realm of investment, the implementation of the SADC FTA is likely to attract investment to the region as larger markets will increase the attractiveness of individual Member States for investors, who will be able to supply the entire region from any individual SADC country.

In addition, South Africa has been engaged in bilateral discussions with individual SADC Member States to promote investment in those economies through spatial development initiatives (SDI's). The promotion of investment in these economies is considered vital, as the absence of inward investment will substantially diminish the benefits of trade integration and may result in an allocation of benefits that is disproportionately in favour of the stronger economies.

The rationale underpinning the SDI concept is that the SADC region's economic potential lies in the extraction and beneficiation of minerals, the expansion of agricultural production and beneficiation through agro-processing and the development of the tourism sector. Due to civil war and neglect, however, much of the infrastructure necessary to render this potential viable is either absent or in a state of disrepair. Hence the SDI methodology endeavours to package and sequence infrastructural and industrial investments projects in a way that makes both commercially viable and attractive to investors.

As regards revenue derived from customs duties on SADC imports1 the reduction of tariff duties will result over time in the Government forfeiting revenues collected from import trade. Since the imports from SADC as a share of total imports is low, the revenue losses are likely to be out-weighed by the creation of new trade. Further, the Government does not rely on trade taxes as a major source of income. Instead, tariff

policy adjustments are considered primarily in the context of trade policy and industrial strategy developments.

In the area of customs control a direct implication for South Africa is the need to strengthen institutional capacity to implement and monitor the agreement in South Africa and the SADC region.

The South African1 Revenue Service (SARS) has already initiated a programme of institutional restructuring and staff training in anticipation of the implementation requirements for both the SADC Protocol on Trade and the SA-EU Trade and Development Agreement.

In line with the restructuring of the SADC Secretariat, the SADC Committee of Ministers of Trade took a decision in September this year to second staff to that institution for the purpose of implementing and monitoring the trade agreement.

In terms of customs cooperation with other SADC countries, three sub-committees -dealing with customs cooperation, trade facilitation and sanitary and phytosanitary standards - have been established to strengthen customs control in the region.

 

5. Consultations

 

The following government departments have been consulted on various aspects of the SADC Protocol on Trade over an extended period: Agriculture; Finance; Foreign Affairs; Justice and Constitutional Development; Minerals and Energy; Transport; the South African Revenue Service and Provincial Governments through the MINMEC.

Various other stakeholder bodies and the public at large have been consulted by way of workshops, seminars and presentations. These include, among others, the following: the Portfolio Committee on Trade and Industry in the National Assembly; the Select Committee on Trade and Industry in the National Council of Provinces; NEDLAC; Chambers of Commerce and Industry; Trade Unions; private and public corporations and academia.

There has also been consultation with the private sector with a view to strengthening systems for combating customs, VAT and trade fraud, both in South Africa and the SADC region as a whole.

 

6. Conclusion

 

On 18 August 1999 Cabinet re-affirmed South Africa's negotiations mandate for a free trade area in the Southern African Development Community based on:

 

(i) a comprehensive offer of coverage for tariff reductions for both traded and non-traded goods as contained in the tariff schedule;

(ii) an accelerated asymmetric reduction of tariffs by the Southern African Customs Union countries within a five year period for the vast majority of tariff lines;

(iii) An adequate and appropriate set of rules of origin for traded products that allows maximum economic activity and value-added processing in the SADC countries and circumvents the trade of illicit and counterfeit goods and fraudulent third party goods as contained in the rules of origin;

(iv) safeguard measures, customs administration, trade facilitation and simplification of documentation and procedures; and

(v) harmonisation of technical standards and other regulations.

 

Cabinet approved that South Africa, acting in unison with partners in the SAC U, create a momentum for forward movement in tariff reductions and the credibility of the SADC Free Trade Agreement by implementing the agreement to eliminate tariffs and other non-tariff barriers by I January 2000 even if it means that SACU implements unilaterally ahead of other SADC countries.

Cabinet further approved that, based on the expected final outcome of the negotiations that would be consistent with the requirements and recommendations outlined above the tabling of the SADC Protocol on Trade for ratification by both Houses of Parliament during the First Session of the Second Parliament in terms of section 231(2) of the Constitution of the Republic of South Africa (ACT 106 of 1996) (the Constitution) in preparation for implementation by January 2000.

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