SADC Trade Tribunal: hearings

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Trade and Industry

24 October 1999
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Meeting Summary

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Meeting report

PORTFOLIO COMMITTEE ON AGRICULTURE AND LAND AFFAIRS; PORTFOLIO COMMITTEE ON FOREIGN AFFAIRS; PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY; SELECT COMMITTEE ON ECONOMIC AFFAIRS: JOINT MEETING
25 October 1999
HEARING OF EVIDENCE ON SADC TRADE PROTOCOL
 


Documents handed out:

FLAMCO Submission
Clothing Federation of South Africa Submission
COSATU Submission

Department of Trade & Industry Website

MINUTES
Flamco cc
Mr J Cole from Flamco CC, said that their submission officially represents charcoal producers from around South Africa. Charcoal is a big export commodity which exports around 50 000 tons a year. He drew the meeting's attention to the problem of unfair competition from SADC countries, in particular from Namibian producers of charcoal. The problem is not so much the competition, but rather that the playing fields are not equal. Namibian producers are allegedly not paying VAT on transport and goods coming through the borders are under-declared. Similarly the charcoal available from Namibia is not at the standard carbon content required by the European market. The solutions proposed by Mr Cole are that more stringent measures must be placed at the borders, especially with regard to the under-declaring and weight measures of goods, and to impose a duty on the importation of charcoal products. (SEE submissions attached)

Questions from members:
Ms F Mahomed (ANC): "You suggest more stringent measures, have you corresponded with any authority with regard to the problems you experience?

Response: "We have made representations to the Board of Trade and also to South African Revenue Services."

Ms F Hajaij (ANC) "In your presentation, mention is made of job losses. Could you give figures of job losses?"

Response: "I have no proof of number of jobs. I have a small company and do not have many employees, but was just forced to lay off 10 to 15 people. There are also other large producers of charcoal that must be taken into consideration."

Mr Rabie (NNP): "Is there any environmental study being conducted or any control of standard for production of charcoal in Namibia?"

Response: "I am not aware of any studies being conducted or standard of control."

Clothing Federation of South Africa
Dr B Richards, President of the Federation, presented the
Clothing Federation of South Africa Submission

Questions from members:
The chairperson, Dr RH Davies, wanted to know whether the end-rated duty from SADC countries into SA would be 50% of the Most Favoured Nation rate and whether that would be sufficient. In response Dr Richards said it would be sufficient.

With regard to their request to eliminate all concessions to import second-hand clothing, Ms Ntuli (ANC) stated that most of the people selling second-hand clothing were previously disadvantaged people. She also said that small entrepreneurs could not get raw materials as the large textile factories did and therefore had to buy it from retailers. Dr Richards responded by saying that the selling of second-hand goods would create newly disadvantaged people as clothing industry jobs would be lost. With regard to the obtaining of textiles from mills by smaller manufacturers, he said that three or four years ago the "Swart Report" had discussed ways and means for small businesses to obtain small quantities of cloth.

Mr C Eglin (DP) related an example of importing fabric for manufacturing duvets. He said that a country like Malawi imported the material duty free, whilst South Africa had to pay enormous amounts to import the cloth. Dr Richards summed the question up as relating to the bringing of the fabric to South Africa via an EPZ. He said that the question would be solved by recognising that EPZ's should not be allowed to manufacture for any market in the SADC region. He said that by definition an EPZ should be devoted to exporting to the outside world. He said that by taking away the facility of an EPZ in Malawi or any other country to bring in cloth or any of the other inputs and by so doing avoiding duty for distribution in the local SADC market, the problem would disappear.

Dr Richards agreed with Mr Eglin that a country like Malawi was able to in fact produce goods cheaper than South Africa because Malawi followed a "one stage conversion" whereas South Africa followed a "two stage conversion". He believed in the two stage conversion and said that the EPZ facility should be taken away because of weak customs administration in South Africa and SADC at large.

Dr Rabie (NNP) said that Dr Richards mentioned that in the textile industry 14 718 jobs had been lost. He wanted to know whether this was a universal trend in the textile industry. Dr Richards firstly corrected Dr Rabie by saying that the issue was jobs in the clothing Industry and not the textile industry. He said that according to the world situation there was not in fact job losses. He said that clothing does tend to migrate to lower wage countries, but added that we are a country in need of jobs and cannot afford migration. He said that we have to look after the jobs we have. He did not want the exporting of jobs to, for example, South East Asia.

Dr Rabie noted that Dr Richards had said that the men's woollen suit market share had increased. He wanted to know by how much it had increased.
Dr Richards acknowledged that this was a good question. He said that this area of manufacture was one of the South African clothing industry's strongest areas of expertise in terms of wool products. He said that the industry bought wool at world prices from local producers, manufactures the wool into cloth which is in turn converted into tailor-made suits. He added however, that in terms of world market share, he did not know since he said that the world market was huge. He said that exports in terms of world markets were very small but inroads were being made. He said that according to export figures he had just received, the total industry had increased by 50% year on year and a large portion of exports were manufactured woollen products.

Ms C September (ANC) referred to the list of imports by the major countries in Annexure 4. She said that many South African companies were based in or moved to neighbouring countries like Mocambique, Malawi, Lesotho and Zimbabwe. She wanted to know whether Dr Richards had a problem with their exporting to South Africa or with those companies paying low wages. Dr Richards said that the clothing industry believed in the SADC agreement. He said that jobs would emigrate to where wage rates were lower. He said that he did not mind South African companies operating from Malawi or Mocambique. He did however object to illegal imports and to legal imports that were related to outdated agreements signed 20 years ago during the Apartheid era. As far as SADC was concerned he said that it was important to do things properly. He said that things had to be thought through properly so that 10 or 20 years in the future there would not be problems.

Another member expressed the view that in the South African situation, it was necessary to come up with an integrated programme, which assists SADC, otherwise any gains made would be nullified by the people who come across the border and cause problems. He suggested that all parties should sit together and, instead of fearing each other as competitors, should work out a way of stimulating industry and work in SADC countries and to come up with a bigger vision of developing together towards something greater.

Dr Richards said that whilst he would like to see the whole SADC region grow and develop, he did not want South Africa sacrificed on the back of other industries which needed to trade with SADC countries. He said that he was concerned with unemployment in South Africa as well as other countries and recognised that if people were not employed in the rest of the SADC countries then some of them would come to South Africa. His view was that our own people's jobs had to be protected in a fair way as far as possible and had to be given priority.

Mr Moosa (ANC) referred to employment figures. He noted that Dr Richards had said that in October 1996 employment peaked at 151 000 jobs and in March 1999 there was only employment for 137 000 people. He wanted to know whether production figures had shown a similar decline.

Mr Paul Theron said that employment increased after the elections in 1994 when there was a euphoria of trade and everything including employment grew. Due to various other influences, including the Asian crisis, the product value index declined and then employment also declined.

COSATU
Ms F Tregenna presented the
COSATU submission

Questions on the COSATU Presentation
Committee member (DP): At the end of Section 3 of the COSATU submission are you suggesting that we are going to prescribe to other SADC countries what their wagesa nd working conditions should be. Is this what I read into this or not?

Response (Mr N Coleman): Clearly all South Africans and the countries in this region would like to see the lifting up of the conditions in the region rather than competing on decreasing standardsof labour conditions and wages.

Mr R Davies (Chairperson, ANC): You talked about conditional ratification. The task before us today is to ratify the enabling document that was agreed in the SADC summit in 1996, the SADC Trade Protocol and to comment on the offer and the on-going negotiations. Which of these ratifications would you like us to be conditional on?

Response (Mr N Coleman): We will write a report to go along with any decision we may take on the ratification of the enabling document. That is more or less our proposal at this stage.

Ms C September (ANC): Has COSATU made an impact study already and if so is it possible to make such a submission.

Response (Ms F Tregenna): We have not conducted an impact study. What we are actually calling for is for the DTI to commission that kind of a study.

Mr M Moosa (ANC): Has COSATU made an input during the process before this either to NEDLAC or elsewhere. I just want to know to what extent you views have been taken up. Is this now the residue of things that have not been taken on board.

Response (Ms F Tregenna): There have been consultations specifically with NEDLAC. Many of the issues raised today have been raised by labour in that process. The process in NEDLAC could be characterised more as a consultation process than as a negotiation process. It was essentially Government negotiating with SADC and consulting with social partners.

Mr D Hanekom (ANC): Something has been said about outflowing capital. My question is, is it realistic to be worried about capital. Does your view of regional industrial strategy not include some kind of relocation of capital into those countries. On the Social Clause I would just imagine if the European Union would impose social clauses on sectors in South Africa we may be in serious trouble. Finally, I think a lot of suggestions here are excellent. I think it is not a question of making protocol ratification subject to conditions but a question of being able to ratify the protocol and then address a number of these proposals we have here and finding the right way for us as committees to do so.

Response (Ms F Tregenna): As COSATU we are not opposed to investment in the rest of the region. What we would be opposed to is movement of capital from South Africa to the rest of the region on basis of poor environmental standards, poor working conditions, low wages, suppression of workers rights and so on.

The Chairperson thanked all stakeholders for their submissions. The meeting was adjourned.

Appendix 1
FLAMCO SubmissionIn response to the "Have your Say" advertisement in The National Newspapers we at Flamco welcome this opportunity to voice opinion on the situation with imported charcoal products from SADC members and in particular Namibia.

Charcoal producers in South Africa including major producers i.e. Suiderland (Piet Retief Mr Mills), E & C Charcoal (Mr Greenwood), Gevers Trust Farms (Mr R Gevers) and many other producers fully endorse my submission here today.

Large quantities of imported charcoal from Namibia is resulting in serious job losses here in S.A. This at the time when the Government Water & Forestry Department is launching initiatives such as the Drakensberg scheme to clear "Jungle Wattle" to produce charcoal and create jobs for South Africans.

South African producers of charcoal export a substantial portion of total production mainly to the E.U. Countries. This export "season" lasts for only about 5 - 6 months . Since the dropping of export incentives (GEIS) and the more stable Rand together with new competition from "Eastern Bloc" Countries as well as traditional rivals i.e. Argentina , Malaysia, Indonesia, Brazil, Ghana, etc.

South African producers are looking increasingly more to the local market for the industry as a whole to stay in business.

Whilst supporting the overall concept of Free Trade with our neighbors it is a case of "one way traffic" when it comes to charcoal.

South African charcoal producers and farmers are at a massive disadvantage as Labour and Raw Material costs in Namibia are a fraction of local costs. This unfair competition will (directly and indirectly) result in many business's closing down.

Tighter controls also need to be applied on V.A.T. payment as it is widely known that many invoices for this commodity has under declared values. As a result most of this charcoal find it's way to various "distributors" who buy and sell the charcoal without declaring V.A.T. Many retail outlets i.e. shops, cafes, garages, encourage goods "without slips" for obvious reasons. This tax evasion is costing the South African Taxpayer more and is gradually closing down Businesses like mine who subscribe to Metro Levies, Taxes and Rates.

There is also no weight and measures control on imported products like charcoal. Local weights and measures officials cannot cope with their normal work load and should imported charcoal weights and standards ever be scrutinised many discrepancies would be discovered. How could our own weights and measures go to Grootfontein or Tsumeb to check and assize weighing equipment?

In conclusion we wish to emphasise that whilst local producers of charcoal could not realistically expect tariffs and duties to be imposed instead tighter border controls need to be applied. Furthermore, whilst not trying to prevent SADC countries from exporting charcoal to R.S.A. we need to be competing on an equal base.

Appendix 2
Clothing Federation of South Africa

Introduction
To ensure that there is no misconception, it is important to state at the outset that both the clothing and textile industries support the broad macro principle of an SADC free trade area.

The concerns of these industries relate more specifically to the manner and extent of implementation. Put another way, it is the process, which raises concern. The concerns are not exclusive to clothing and textiles - they have also been expressed by other industries such as tyres, motor vehicles, electronics, and footwear.

The position of the clothing and textile industries also needs to be understood from the international perspective; namely, that they are considered as sensitive industries throughout the world. This is primarily due to their job-creating potential.

The industries are mid-way through a tariff restructuring programme. The vision of this programme, inter alia, was for the clothing industry to be the engine for growth and to be the creator of formal job opportunities. Unfortunately, the domestic economy, the international financial crisis, inequitable bilateral trade agreements and an influx of illegal imports have mitigated significantly against the envisioned growth in formal jobs occurring.

In fact, after peaking at 151 748 in October 1996, formal employment in the clothing industry, as reflected by the official statistics, has declined continuously to 137 030 in March 1999 - a net loss of 14718 formal jobs. A comparison of the decline in bargaining council employment is shown in Annexure 1. No official statistics are available on informal employment due to the nature of this sector.

Customs Administration
The most significant problems which the industries have had to endure is that of ineffective customs administration. This has enabled clothing and textiles to enter the country by various methods such as bribery, smuggling, mis-declaration, goods in transit abuse and trans-shipment (abuse of bilateral trade agreements).

Industry has funded the Customs Law Enforcement Task Group for the past 3 years in an effort to assist Customs.

Other efforts including reducing ports of entry and raising VAT up-front on exports (including BLNS countries) have all contributed to reducing the problem, but not eliminating it.

It is believed that the number of ports of entry should be reduced even further. Industry would be able to provide expertise to customs officials to assist with technical advice. The reduced number of ports of entry would facilitate the training of specialist customs officials.

It is this environment that raised the concerns over the SADC free trade agreement. It is strongly believed that effective and efficient customs administration needs to be in place in all SADC countries and proven to be competent before the trade agreement is implemented.

SADC Principles
The industry has consistently maintained that certain principles should be upheld, viz.
(i) SA Tariff Offer
(ii) A common tariff phase-down, not on a differentiated line by line basis.
(iii) Rules of Origin - 2 stage processing.
(iv) Reciprocal offers.
(v) Exclusion of EPZ's.
(vi) Common external tariffs.
(vii) Multilateral customs authority.
(viii)Exclusion of derogations.
(ix) Elimination of second-hand clothing.
(x) Labour rights.
(xi) Country of Origin labeling.

(i)SA Tariff Offer
The Government has placed an offer on the table where clothing in general is to be phased down to zero over 6 years. Industry believes that this offer is far too generous and should be limited to 50% of the m.f.n. rate over 10 years. The analogy drawn with the EU is fallacious. The EU-SA relationship is very different with the EU clothing industry being a giant and EU clothing imports from SA accounting for only 0,1% of total EU clothing imports. The attached balance of trade with SADC figures and the dominant role of Malawi clearly demonstrate the SA-SADC relationship is totally different.

(ii)Common Tariff Phase-Down
Different rates for different product lines create administrative difficulties and result in loopholes, particularly where customs administration is weak.

Differentiation results in an inequitable trading environment and inhibits fair competition as specific product categories are protected.It has been noted that several SADC members have submitted offers on a differentiated basis which is clearly protecting their specialised areas of production which are already their strengths.

Product differentiation creates anomalies and is discriminatory. An example would be SA has strength in men's woolen suits. Should one give preference to one's strength if it is internationally competitive and is not produced in SADC? Similarly should one sacrifice a weaker area, say T-shirts or should the domestic interests be encouraged to develop their competitiveness. Clearly such a process is highly discriminatory and inequitable - hence the need for a rationalised tariff phase-down approach.

(iii)Rules of Origin
This principle facilitates regional pipeline development and has been accepted by the DTI negotiators.There has been resistance from certain member countries - this is based on self-interest and a short-term opportunistic viewpoint. It ignores the objective of developing the pipeline on a regional basis.

(iv)Reciprocity
This principle is fundamental to a common trade area. SADC members have started to reciprocate, but not with a fair give and take approach. This is one of the problems that arise from a differentiated product line approach.

(v)Exclusion of EPZ's (See Annexure 2)
EPZ's enjoy preferential labour, tax and other dispensations which separate them from normal operating conditions within a domestic economy. Clearly, such zones already have preferences and should be excluded from the normal trading environment. Also, EPZ's by nature mean exports. A common regional free trade area should be viewed as one market and trade between member states as internal trade, not exports. Exports should refer to exports out of the common region. Apparently the DTI is only able to see this from a SA production context but is ignoring the principle when applying it to member states.Their argument is that the Rules of Origin will negate EPZ's anyway. EPZ's by definition, are based on accessing imported inputs. Clearly the Rules of Origin is a necessary, but not a sufficient condition.

(vi)Common External Tariffs
Common external tariffs are an accepted principle of the trade protocol. However, they are being considered as a long-term goal, rather than as an immediate requirement. A differentiated tariff structure represents a real threat to the integrity and intention of the free trade area. Imports will be routed through the lowest tariff country rather than through the country which has the natural production advantage.

(vii)Multi-lateral Customs Authoritv
Industry believes the best way in which to secure the integrity of customs administration throughout the region is by means of an independent multilateral body. Such a body would be impartial and regionally mobile.

(viii) Derogations
It has always been maintained that the SADC agreement would supersede all bi-laterals at date of implementation with immediate effect. Now derogatlons are being considered for the "LDC's" of SADC. The principle of a phase-in period on Rules of Origin can be appreciated. However, it is not understood why a country such as Malawi should be allowed a period of grace at a duty free level when all raw material requirements (inputs) could be sourced from South Africa. Such a process also discriminates against other member states such as Zimbabwe who are prepared to accept the Rules of Origin.

(ix)Second-Hand Clothing
The industry believes that all concessions to import second-hand clothing into both SA and SADC should be eliminated. Africa is used as the dumping ground of the developed world, particularly the EU and USA, for second-hand clothing. Under the guise of charity, these benefactors are trying to get rid of their own domestic problems. All that the imports do is destroy jobs in Africa. Tanzania and Malawi have already had their industries decimated by second hand clothing. Malawi has to export to SA to survive, which in turn, affects SA jobs.

(x)Labour Rights
The industry supports the principle of common core labour rights throughout the SADC. This is necessary to ensure that labour is not exploited and employed under "sweat shop" conditions. This will be critical for the region to export internationally.

(xi)Countrv of Origin Labelling
The industry has already initiated, with the DTI, consideration of Country of Origin labeling being introduced. This is an internationally accepted standard which facilities customs administration, discourages trans-shipment and improves consumer information. Such labeling also supports the Buy SA Campaign emanating from the Jobs Summit.

Regional Trade
Much has been made of the trade imbalance between SA and SADC countries, which is understandable. The point to note, however, is that in clothing (and textiles), the converse already applies. (See Annexure 3). The level of imbalances is so great that the textile and clothing industry would be sacrificed in totality with only a negligible impact on the imbalance.

The dominance of Malawi, as a result of the non-reciprocal bilateral free trade agreement, is self-evident from the figures attached. This clearly shows how one-sided agreements, combined with weak administration, result in distorted trade patterns. The problem of Malawi was first drawn to the attention of the authorities in 1995 and has not yet been resolved. (See Annexure 4/5).

The bilateral agreement with Mozambique allows for a preferential rate of 3% up to a value of US$790 000 per annum in respect of clothing into SA. This is also beginning to become a major problem in a similar way that Malawi started and the growing trend in imports from Mozambique is well illustrated in the import statistics attached. (See Annexure 4/5).

The case of SA exports to Mozambique also demonstrates the problem of poor administration. The surge in exports to Mozambique was due to a fictitious export of R100 million brassieres in a three month period. The case of a major South African chain was recently published in the press and it would appear that this company may have been involved in this transaction. (See Annexure 6).

Conclusion

The SADC free trade agreement represents a new era for the region with the potential to become a role-player in the global village.

There is, however, a real need to establish a proven efficient and effective customs
administration prior to implementing a free trade area, and to ensure that trade is fair. The single most effective and fastest step that could be taken to improve our customs administration is Country of Origin labeling.

 

Appendix 3

COSATU submission

COSATU welcomes the opportunity to comment on the Southern African Development Community Protocol on Trade ("the Protocol"). Closer regional integration and co-operation is long overdue, and a trade protocol would be one component of this. The Protocol will have significant effects - social, economic, and political - for South Africa and the region as a whole.

In making our submission we are mindful of the fact that negotiations on the Protocol are at an advanced stage, and that implementation has been set for 1 January 2000. Nevertheless, we hope that the Portfolio and Select Committees will have as meaningful an engagement as possible with the Protocol and associated offers. In particular, we are making various proposals, which we believe to be in the national interest, which we call on the committees to recognise and to make their ratification of the Protocol conditional on.

While there has been consultation around the Protocol, which has also involved labour, our feeling is that this consultation could have been more extensive and meaningful. In particular, more information could have been shared from government's side, and in a more timely fashion. It is unfortunate that so few submissions are being made today, despite the fact that the South African economy will be greatly affected by the Protocol. This is perhaps an indication of the work which is still required in publicising the Protocol and the offer as it currently stands. In the remaining time before the final offer is wrapped up, there should be maximum consultation with those sectors which are likely to be particularly affected.


2. Summary of Recommendations

    3. A political approach to regional trade

    COSATU's approach to the Protocol moves from a fundamentally different starting point to our approach to the EU Agreement. Whereas South Africa's relationship to the EU is a "David and Goliath" situation, in the Southern African case it is South Africa which is the regional hegemon, particularly at the economic level. Many of the problems experienced by Southern African countries, particularly those neighbouring South Africa, have resulted from the actions of South Africa over many decades. This ranges from the core-periphery economic relationships fostered with these countries which have tended to lock their economic structures into primary production, to the more overt political and military destabilisation conducted by the Apartheid regime.

    Many Southern African countries carried part of the burden of the South African liberation struggle - in some cases as a conscious choice, in other cases this was foisted on them. It would be difficult to quantify how much stronger regional economies would be today had it not been for the destruction unleashed by Apartheid South Africa. But what is clear is that the programmes of destabilisation and counter-revolutionary wars in countries like Mozambique, Namibia, Zimbabwe and Angola have brought untold hardship to the people of these countries. It is thus fair to say that South Africa has a moral imperative to contribute extensively to sustainable and equitable development within the region.

    Over and above this moral imperative, the destabilising potential for South Africa of regional underdevelopment has been extensively discussed. Negative effects include political and economic refugees to South Africa, increased crime, and downward pressure on South African wages and working conditions.

    Given the above context, and the fact that the South African economy far outweighs those of the region, our approach needs to be totally different from our approach to trade with the EU. Trade and economical development within the region is a sensitive issue for both COSATU and South Africa as a whole. Just as we have criticised imbalances in trade relations between countries of the North and the South, it would be incorrect for us to make an offer to Southern African countries which results in a deterioration in their position.

    As a trade union federation we cannot support job loss for South African workers, particularly given the extremely high unemployment rate we are currently faced with. We have a strategic interest in growing the economy of the Southern African region as a whole, which will entail the growth of employment in the region in the medium term. The sharing of jobs within the region must be based on acceptable wages and working conditions, to raise the standard of living of our people, increase demand, and avoid the scenario of a "race to the bottom", where countries of the region compete on ever-lower labour and environmental standards.

    COSATU would be opposed to the transfer of jobs from South Africa to other countries in the region if such transfer is on the basis of low wages, abysmal working conditions, or suppression of worker and trade union rights. This would not constitute development or empowerment for the country in question, and would just result in super-profits for South African companies. Specific proposals aimed at preventing this scenario are tabled later in this document.

    4. Regional industrialisation before trade integration

    Due to time and capacity constraints as well as the limitations imposed by the lack of impact assessments, COSATU will not be commenting on the specific levels of the offer as it currently stands. For us a more fundamental issue is the appropriateness of a trade protocol as the centrepiece of our regional development strategy. Trade liberalisation within the region presupposes productive capacity within other Southern African countries to take up increased trade opportunities. COSATU is not convinced that such productive capacity exists. In our analysis the major obstacle to regional economic development is not primarily a lack of market access, but rather a lack of productive capacity.

    There is a danger of the Trade Protocol - notwithstanding its asymmetrical and differential bias in favour of other countries in the region - deepening the existing polarisation within Southern Africa. Free (or partly liberalised) trade tends to benefit stronger economies at the expense of weaker ones. Tariff liberalisation has the potential of destroying domestic economies in other parts of the region, while simultaneously causing job losses within South Africa. For example, simple relocation of South African companies to the rest of SADC would exacerbate the South African unemployment problem, while simultaneously limiting the potential for domestic industrialisation in other SADC countries.

    South Africa should avoid the Protocol deepening rather than transforming the existing inequalities in economic relationships within the region. "Regional development" does not mean South African industries sourcing their primary inputs from other SADC countries in a classic core-periphery way. Regional industries need to develop in their own right, rather than just as suppliers or adjuncts to South African industry.

    This suggests that a regional trade Protocol should have been preceded by regional industrial and development strategies. COSATU has taken note of the regional Spatial Development Initiative (SDI) projects, particularly those in the Eastern parts of the region. These in themselves, however, cannot be said to constitute a regional industrialisation strategy. Infrastructure development and integration would, however, constitute a key component of such a strategy.

    A regional industrial strategy should be geared towards the promotion of up- and down-stream linkages within the region. This would advance regionally based production processes, with different countries participation based on their static and dynamic comparative advantages. By this we mean that countries should maximise the benefits from their existing strengths, while simultaneously attempting to improve their comparative advantages in moving up the value-adding chain.

    In such a situation the relocation of a factory within SADC is not disastrous, if other stages of the production process are located elsewhere within the region. Geographic proximity of the region would also favour this type of regional industrial integration over production processes which are fragmented over different continents.

    COSATU is cognisant of the desire of the South African government to implement the Protocol as a matter of urgency. In fact, as discussed in our submission on the EU Agreement, we would have preferred the implementation of an agreement within the region prior to the concluding of an agreement with the EU. Nevertheless, we propose that the government urgently initiates the formulation of comprehensive regional industrialisation and development strategies which could be implemented as soon as possible after the implementation of the Trade Protocol. Such strategies should be aimed at building up productive capacity within the region, particularly within those countries whose economies have been the most devastated. This would ensure that such countries would be capacitated to take up enhanced trade opportunities within the region, while minimising/avoiding capital flight of South African companies in pursuit of lower wages and working conditions and "compliant" workers. It would also minimise the negative effects of the EU Agreement on SADC countries.

    5. Impact Analyses

    As with the EU-RSA trade and development and co-operation agreement it has been disturbing that government has commissioned no comprehensive impact studies on the possible consequences of the agreement upon South Africa or the region as a whole. COSATU would have thought that given the importance of the agreement that government would have commissioned a general multi-sectoral analysis of the probable impacts of the agreement; as well as separate sector specific impact analyses. These analyses could also have looked at the impacts of the agreement on specific areas of the country; as well as vulnerable groups (e.g. women).

    While it is acknowledged that the South African economy is large (relative to that of all other SADC states) and therefore it could be argued that the potential harm (or benefits) to the South African economy may not be that great, COSATU is of the view that the agreement may affect particular sectors (and sub-sectors) of the economy particularly hard. There could be significant job losses as South Africa imports from the rest of SADC rather than source domestically; and when South African companies start to relocate to other SADC states. Similarly, there seems to be limited information about growth prospects for South African firms arising from the Protocol.

    In COSATU's view it is vital that some assessment is made of the magnitude of impact of the SADC agreement upon South Africa (and other SACU states). South Africa is in a fortunate position (unlike the EU-RSA agreement which for all intents and purposes has been finalised) as this impact analysis can still be completed prior to the finalisation of the tariff arrangements. Therefore the DTI should be requested to urgently commission detailed research which would identify those "vulnerable" sectors of the economy. Thereafter it should be required commission in depth research on specific impact of the agreement (especially in relation to jobs) on those vulnerable sectors. From such studies we should be able to identify "winners" and "losers" within the domestic economy, and take appropriate steps to ensure that gains are shared and losses supported in cases where such losses are unavoidable. Where appropriate, the trade offer should be adjusted to minimise losses.

    It has been anticipated that labour-intensive industries within South Africa, such as textiles and clothing, are likely to relocate within Southern Africa purely on the basis of lower labour costs. This would be likely to have a disproportionately negative effect on women workers within South Africa.

    6. Regional development, not a regional conduit

    Trade liberalisation within the region presents a danger - which has been acknowledged by the government - of the region becoming a mere conduit for goods manufactured elsewhere on the basis of even lower wages and working conditions to be imported into South Africa. COSATU regularly hears of concerns from our manufacturing affiliates of for example items of clothing or footwear being imported from Asia, minor additions being made, and being sold on the South African market hence undermining our domestic industries. This would not build industries in the rest of the region, but would lead to huge job losses in South Africa. The key to preventing this is strong Rules of Origin provisions which are consistently applied.

    COSATU proposes a tightening up of the existing Rules of Origin proposed in the offer. For example, in the clothing, textiles and footwear sector the South African Clothing and Textiles Workers' Union (SACTWU) has proposed a local content requirement of at least two stages of transformation and 90% of value added for goods to benefit from trade preferences within SADC. COSATU also proposes a further tightening of Rule of Origin in a phased manner over time. This would encourage SADC countries, as they progressively improve their manufacturing capacity, to base more and more of the production process within SADC.

    Comprehensive monitoring is required to ensure that Rules of Origin agreed to are not evaded. An example of an undesirable scenario could be the establishment of one closed corporation in a country in the region to import goods from a cheap foreign producer, and another closed corporation in the same or different regional country which purchases the goods and resells them in South Africa. This could give an impression at first sight that they have been locally/regionally sourced. Allowing such goods to qualify for trade preferences under the Protocol would be like having almost no barriers to importing from anywhere. What is needed within SADC is to build up manufacturing capacity, not just to promote a parasitic trading class which uses the region as a conduit to the South African market.

    To ensure the enforcement of these Rules as well as other relevant provisions of the Agreement, COSATU proposes the establishment of an Independent Complaints and Investigations Commission (ICIC) within SADC. This would be a multilateral institution, possibly with officials seconded with national institutions, with powers of investigation and seizure in all member countries. Such a proposal seeks to balance the need to respect national sovereignty with the need for effective enforcement. This is a role which is often difficult for national police forces or customs officials to play, where local companies are benefiting from a less than stringent application of the rules.

    We are convinced that South African business will support us on such proposals.

    7. Social Clause

    COSATU registers its disappointment that the current Protocol does not provide for any social clause. A social clause is vital in ensuring that decent working conditions and human rights prevail in the region, both for the sake of workers in other SADC countries and to avoid downward pressure on wages and working conditions within South Africa. COSATU is aware of a concern that South Africa should not be perceived to be dictating to other countries in the region. However, this should not translate into an attitude that appalling working conditions and the suppression of basic worker and trade union rights are "domestic matters". Although a separate "social charter" is being discussed within SADC, an agreement on a binding social clause needs to be a direct part of the Protocol and offer under discussion today.

    COSATU feels very strongly that the Protocol should include a social clause, which ensures that all-participating countries at a minimum respect and fully implement the four core sets of internationally agreed labour rights. These are freedom of association and effective collective bargaining; no child labour; no forced labour; and freedom from discrimination. There should be adequate monitoring mechanisms which include legitimate trade unions, and arbitration on any disputes about compliance.

    Furthermore, COSATU proposes the categorical exclusion of any goods produced within Export Processing Zones (EPZ's) in the region from the trade preferences. Production within these zones tends to rely on even cheaper labour and the suspension of labour rights. Any area (geographic or a production unit) in which the core ILO conventions are suspended in whole or in substantial part would be excluded under this principle. Including such zones under the preferences of the Protocol would not only entrench their existence but would also put pressure on countries to base their competitive advantage on lowering labour standards. The proposed Independent Complaints and Investigations Commission could play a vital role in ensuring the implementation of these exclusions.

    COSATU is cognisant of its responsibilities to promote strong trade unions in the region, which can fight for improved wages and working conditions in other countries. We are already engaged in this exercise, both through the Southern African Trade Union Co-ordinating Council (SATUCC) and on a bilateral basis. These initiatives cannot, however, replace the formal inclusion of a social clause in the Protocol and we urge Parliament to call for this, and in fact to make ratification of the Protocol condition on the inclusion of such a clause.

    8. Standards

    Our submission on the EU raised concerns around non-tariff barriers to trade. South Africa should not open itself to criticism of using similar barriers in the region, such as Sanitary and Phyto-sanitary Standards (SPSS) and Technical Barriers to Trade (TBT). COSATU fully supports the need to ensure that adequate safety and hygiene standards are met for South African consumers, and that for example there is compatibility of electrical appliances. The challenge is how to assist in empowering other SADC countries in meeting appropriate standards, so that these standards truly act to protect consumers rather than as obstacles to regional trade. COSATU proposes that DTI, in conjunction with other relevant bodies, develops proposals in this regard.

    9. Implementation of the Protocol

    The Protocol will obviously lead to both winners and losers in the South African economy. It would be simplistic to think that workers who lose their jobs in an industry negatively affected by the Protocol would simply be able to gain alternative employment in another industry benefiting from growth opportunities emanating from the Protocol. This would be constrained by, amongst other things, the limited mobility of factors of production. An important redistributional role thus arises for government in ensuring that the "losers" from the Protocol, particularly those workers with limited alternative options, are supported. Specific proposals for this are set out below.

    9.1 Dealing with negative effects

    With the operationalisation of the Protocol it is clear that there could be many firms / sectors / regions / portions of the labour market (e.g. women) in the economy that could experience severe difficulties in adjusting to the increased penetration of the RSA market by SADC products. Should this happen-substantial number of workers could lose their jobs. It would be patently unfair that workers should have to take the brunt of the effects of the Protocol. COSATU proposes that government immediately identifies those sectors of the economy that would be particularly vulnerable to the effects of the Protocol. This would enable strategies to be implemented to these vulnerable sectors to adapt, or soften the impact, etc.

    COSATU tables two key proposals in this regard:

    • Support for industrial restructuring
    • Sectoral restructuring funds can be instituted, to be jointly managed by government, business, and labour, to fund supply side measures for negatively affected sectors. Furthermore, government should adjust the existing government supply side / industrial support incentive programmes in order that affected firms or sectors can withstand some of the shocks that the Protocol may present. In some instances it may be necessary for government to introduce entirely new support measures. The type of initiatives which could be supported both by sectoral restructuring funds and by independent government initiatives could include investment incentives, technical assistance with restructuring, accelerated research and development, and skills training for workers in the sectors.

    • Support for workers affected
    • COSATU proposes that as soon as this Protocol comes into effect a programme should be immediately implemented to assist all those workers who are dislocated as a result. Consultative studies would be required to attempt to identify and quantify job losses which come about as a (direct or indirect) result of the Protocol. The support measures proposed by COSATU will require the establishment of additional support measures over and above those existing resources that emanate from the Unemployment Insurance Fund; the Social Plan; and training programmes. COSATU has tabled proposals in this regard in other forums.

    9.2 Taking advantage of opportunities

    On the assumption that this Protocol may offer significant economic opportunities for the RSA, the question is posed as to how the RSA will be able to maximise these potential opportunities. While the business sector will play a major part in the maximisation of these opportunities labour is of the view that government must play a lead role in this initiative.

    COSATU tables the following specific proposals :

    • the DTI (in conjunction with other affected government departments) should be requested to design and deliver a comprehensive educational / information programme regarding the opportunities that this Protocol will offer the RSA economy. The general and sector specific programmes should concentrate on how the RSA can :
    • encourage the promotion of its exports;
    • attract new investment that will be able to take advantage of the new trade preferences;
    • focus on opportunities for SMME's;

    COSATU would propose that the programmes should not only be drawn up by those people charged with the specific responsibilities for export promotion and investment, but that it should also involve those people who were active in the negotiation of the Protocol itself. Should it be necessary the government should provide additional financial resources to sectors so that they can do thorough research on what new opportunities have been created.

    All these programmes should be finalised prior to the coming into force of the Protocol.

    9.3 Customs Controls

    For South Africa an important key to the success of the SADC trade protocol will be the ability of the customs administration(s) - both South African and in the rest of SADC - to manage and regulate the flow of goods. Members of the portfolio committee will be aware of the damage that has been done to South African industry due to problems within the customs administration, including the fact that customs is under resourced.

    COSATU acknowledges that some significant strides have been made in order to "fix" South Africa's own customs function. We are, however, still concerned about the readiness of South Africa's customs to handle the SADC agreement (and the EU agreement) from 1 January 2000.

    COSATU proposes that in the context of the EU and SADC agreements; and the numerous bi-lateral agreements already in place (e.g. RSA-Malawi, RSA-Mozambique, RSA-Zimbabwe, etc); that the Trade and Industry Portfolio Committee in conjunction with the Finance Portfolio Committee should set up a task team to look separately at the issue of customs controls. This task team should look at both SA customs; and the effect inefficient and corrupt customs located elsewhere in SADC could have on the RSA. The task team needs to liase with the team working under the NEDLAC Trade and Industry Chamber.

    Specific proposals on improving the efficacy of South African customs and excise include the following:

    • increasing the inspection rate of goods
    • developing a new valuation methodology and enforcing practical valuation procedures at ports of entry
    • improving the technical ability of customs officials to identify and value goods accurately
    • tighten security at customs warehouses to stop the theft of seized goods
    • improve the resources available in the Board of Trade and Tariffs for anti-dumping and countervailing investigations
    • prosecute retailers and middlemen caught with goods which have entered the country without the proper payment of duties, publicly disclose the names of guilty parties and apply stiff penalties against companies and individuals found to have benefited from such abuses
    • implement the remainder of the proposals for reform of customs and excise as submitted by Labour to the Presidential Jobs Summit.

    These proposals should be implemented as far as possible before the implementation of the Protocol, rather than at a later stage.

  • Our approach to the Southern African region should be aimed at sustainable and equitable development and at closing the existing regional inequalities.
  • The Trade Protocol should be complemented by a regional industrialisation strategy which enhances productive capacity within the region, accelerates infrastructural development and integration, and maximises production linkages in different parts of the region.
  • The Department of Trade and Industry should urgently conduct impact analyses which quantify the projected effects of the Protocol on specific sectors of our economy, both in terms of negative effects and possible job losses, and expansion opportunities. We call on the Portfolio and Select Committees to make their ratification of the Protocol conditional on such studies being conducted.
  • The provisions and implementation of the Protocol should ensure that only goods which are substantively produced in the region should be covered, as opposed to the region simply becoming a conduit for the import of cheap goods from the rest of the world.
  • To this end COSATU proposes a tightening of the Rules of Origin on the existing offer. The Rules should be further tightened in a phased manner.
  • There should be stringent monitoring to ensure that Rules of Origin are adhered to. Specifically, COSATU proposes the establishment of a multilateral Independent Complaints and Investigations Commission within SADC.
  • COSATU proposes the introduction of a Social Clause in the Protocol which ensures that the core ILO conventions are adhered to. Furthermore, goods produced within Export Processing Zones in the region should not be covered by the provisions of the Protocol. COSATU calls on the Portfolio and Select Committees to make ratification of the Protocol conditional on the inclusion of a Social Clause, which government has in any event committed itself to in principle in trade agreements.
  • Other SADC countries should be assisted in meeting the appropriate safety and hygiene standards.
  • In order to deal with negative effects arising from the Protocol for the domestic economy, support for industrial restructuring and well as for affected workers should be put in place. Specific proposals in this regard are contained in our submission. Furthermore, the Protocol should be adjusted where appropriate.
  • The DTI should identify and publicise growth opportunities arising from the Protocol for South African producers. Programmes should be put in place which encourage exports to the rest of the region, attract new investment which will be able to take advantage of the new trade preferences, and focus on opportunities for SMME growth.
  • South Africa's customs need to be urgently tightened up to ensure that they are able to deal with the Protocol. Various proposals for improving the capacity of Customs are listed in our submission.
  • 1. Introduction

     

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