Trade Negotiations: Ministry update; Gambling Amendment Bill: Department response to submissions

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Trade and Industry

28 August 2007
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
29 August 2007
TRADE NEGOTIATIONS: MINISTRY UPDATE; GAMBLING AMENDMENT BILL: DEPARTMENT RESPONSE TO SUBMISSIONS

Chairperson: Mr B A D Martins (ANC)

Documents handed out:
Deputy Minister’s presentation on trade negotiation issues
Acronyms used in Deputy Minister’s presentation
Update on Trade Negotiating Agenda for Industry Forum by DTI’s International Trade & Economic Development Division (ITED)
Department of Trade and Industry (DTI) response to submissions on Gambling Amendment Bill
National Gambling Act, 2004
National Gambling Amendment Bill [B31-2007]

Compressed audio recording or WAV Recording of meeting

SUMMARY
The Deputy Minister of Trade and Industry gave a presentation on issues and challenges in current trade negotiations focussing on the World Trade Organisation (WTO), the Southern African Development Community (SADC) regional integration and SADC and European Union (EU) Economic Partnership Agreement (EPA) negotiations. The position at the failed WTO Doha negotiations at Potsdam in June 2007 meant developing countries would take real applied cuts in industrial tariffs but the developed countries would not be taking cuts in trade-supporting subsidies in agriculture. There was a possibility of revision of texts but time was running out and the “window of opportunity” might close.

A SADC Free Trade Area was envisaged for 2008 in terms of the WTO definition of free trade, which entailed no duties on “substantially all trade”. DTI’s
International Trade & Economic Development Division (ITED) provided a progress report and implications of the differing trade agreements. The report pointed out that there were only a few functioning customs unions in the developing world, which constituted only partial union and that it took many years to construct.

The Deputy Minister also focused on the SADC EU EPA negotiations. The EU had non-reciprocal EPA arrangements with the African Caribbean and Pacific (ACP) countries which offered them better access to EU markets. EU has argued that it cannot any longer continue with non-reciprocal preferences and that there was a need to move to a WTO agreement.

The DTI aimed to raise the profile of Nepad in SA by establishing SA projects relating to NEPAD. NEPAD’s overall objective was continental integration and the promotion of inter African trade

Questions from the Committee focussed on an international fair rule based system, compliance by the EU and the US, timeframes for negotiations, bio fuel, the exclusion of competitive SA products from the SADC EU EPA, SADC, the United States of Africa, how much real change was taking place on the ground, the interaction with EU parliamentarians.

The Department then provided a response to public submissions on the National Gambling Amendment Bill. It was proposed that the long title be amended so that it stated clearly that the objective of the Bill which was to regulate and curtail interactive gambling in order to protect society against the over stimulation of the demand of gambling and to prevent of money laundering and protect minors. It was proposed that Clause 15 be amended to prohibit advertising for interactive gambling. Person-to-person betting was seen as a separate process and not part of interactive gambling in terms of the Act.

Committee questions focussed on foreign operators having a presence in South Africa for monitoring purposes, investments by interactive operators, research on interactive gambling and whether moral issues were adequately addressed.

MINUTES
Deputy Minister on current Trade Negotiations

Dr Rob Davies gave a presentation on issues and challenges in current trade negotiations focussing on the World Trade Organisation (WTO), the Southern African Development Community (SADC) regional integration and SADC and European Union (EU) Economic Partnership Agreement (EPA) negotiations.

The WTO Doha negotiations were resumed after a suspension in July 2006. The Doha negations were a twin track process involving G4 meetings (EU, US, Brazil and India) and multi-lateral negotiation groups. The G4 negotiations broke down in Potsdam in June 2007 where the United States of America (US) and EU came together and moderated their demands towards each other but applied pressure on developing countries especially with regards to Non Agricultural Market Access (NAMA). The US and EU insisted on advanced developing countries making sharp applied cuts in NAMA (Swiss formula coefficient 18). This was rejected by India and Brazil. On 17 July 2007 the chairpersons of the NAMA negotiation groups submitted “compromise texts” which they judged to be the basis for concluding the current phase of negotiations. These texts favoured developed countries but created unfavourable conditions for most developing countries. The agriculture text accommodated the positions and sensitivities of the major players. The NAMA texts were highly criticised by developing countries. Developing countries would take real applied cuts in industrial tariffs but the developed countries would not be taking cuts in trade-supporting subsidies in agriculture. The next step would be possible revised texts and there could be engagements with these texts. There would either be some resolution to this process but the opportunity for resolution might be overtaken by the US election. A small window of opportunity existed to resolve the negotiation process.

Dr Davies then focussed on SADC regional integration. A SADC Free Trade Area (FTA) was envisaged for 2008 in terms of the WTO definition of free trade, which entailed no duties on “substantially all trade”. A Customs Union for SADC by 2010 was also envisaged where SADC countries would have a common tariff towards countries outside SADC. Other objectives included a Common Market (free movement of all the factors of production) by 2015, a monetary union by 2016 and a single currency by 2018.

A special SADC summit was held in October 2006 where specific research was commissioned. The The Southern Africa Customs Union (SACU) undertook to remove duties on more than 95 % of tariff lines amongst SADC members which was achieved. The Democratic Republic of Congo did not sign the agreement and Angola made no offer. It was indicated that four countries were behind with their current commitments and 5 countries had heavily back loaded their obligations. Some countries have done very little in terms of implementing the SADC FTA. All SADC countries agreed that the FTA should be launched in 2008. SA wanted the existing commitments in terms of the Maseru FTA protocol to work. Commitments included tariff commitments, co-operation in terms of industrial policy, sectoral co-operation and rules of origin.
 
A consultants report has been tabled which highlighted the implication of differing trade agreements. The report pointed out that there were only a few functioning customs unions in the developing world, which constituted only partial union and that it took many years to construct.

The consultants report rejected the variable geometry option which said that the current Customs Union should be kept and built on. A complete new SADC CU was proposed with a completely new Common External Tariff (CET). The main argument for the new CU was that it would lock in a new low tariff regime which would integrate the region into the world economy.  There was an acknowledgement for the need to retain customs revenue collection at approximate current levels with a simpler, cleaner revenue sharing formula. A CET with zero duties for capital and intermediate goods and a 5-10 % flat tariff on consumer goods were proposed.

Dr Davies also focused on the SADC EU EPA negotiations. The EU had non-reciprocal EPA arrangements with the African Caribbean and Pacific (ACP) countries that offered them better access to EU markets. EU has argued that it cannot any longer continue with non-reciprocal preferences and that there was a need to move to a WTO agreement.

Not all SADC countries were in the same configuration. Malawi, Mauritius, Zambia and Zimbabwe chose to join the Eastern and Southern African (ESA) group and the DRC joined the Central African Monetary Community (CEMAC).

In the interest of promoting regional integration and harmonising relations with the EU, SA joined the SADC EPA process. A proposal was adopted which said that SADC already adopted EU reciprocal agreements. Angola, Mozambique and Tanzania were Least Developed Countries (LDCs) and were entitled to duty free access but did not get it. Negotiations with the EU should focus on sensitivities with Angola, Botswana, Lesotho, Namibia and Swaziland. Duty free markets for SADC to EU markets were proposed. The EU responded after a year saying that duty free access was possible except for sugar, rice and competitive products from South Africa.

The EU argued that LDC should accept reciprocity. It was also argued that the EPA process should also include negotiation of agreement on trade in services and “new generation” issues (investment, transparency in government procurement, competition, labour and environmental standards) and intellectual property (geographic indications).  The EU indicated that all requirements should be met by December 2007.There was some progress made at a technical level on trade in goods. The EU was offering to improve access for SA and wanting improved access in return. There was a lot of pressure on Angola, Mozambique and Tanzania to reciprocate.

The most difficult issues were considered to be trade in services and trade related issues. Common regional position on these issues only emerged within the EU at an advanced stage of its integration. The SADC EPA’s common position was that there should be agreement on cooperation with the view to build capacity, but that there would be no binding commitments nor countries being subjected to dispute settlement under the EPA. The EU wanted firm commitments to negotiate binding commitments in the later EPA phase with upfront commitments from SA.

Mr
Xavier Carim, DTI’s Deputy Director General of ITED, gave an update on NEPAD. NEPAD’s overall objective was continental integration and the promotion of inter African trade. Coordination of Information Technology and Telecommunications (ICT) infrastructure, tourism and small business development was considered important in terms of NEPAD. The DTI aimed to raise the profile of Nepad in SA by establishing SA projects relating to NEPAD. A number of infrastructure projects had been identified which were being profiled to international investors. DTI required a review to evaluate progress with these projects to determine if there was delivery of objectives.

The DTI coordinated SA’s input into the African Peer Review Mechanism (APRM). A programme of action focussing on corporate governance and regional integration was developed.

An important issue for the DTI was also the strengthening of intergovernmental coordination with regard to NEPAD. The DTI focussed on how to provide efficient support to the NEPAD Secretariat in SA.

In terms of the India-Brazil-South Africa (IBSA) trilateral initiative, Mr Carim said that significant advances were made in the coordination of their respective approaches on international issues. The DTI was working with the Department on Foreign Affairs on this. Sectoral working groups were established with some of them having memoranda of understanding relating to science and technology, transport, energy and customs. The DTI was responsible for the subcommittee on Trade and Investment. An important sub programme for this committee focused on concluding an agreement to open up trade between SACU and Mercosur countries (
Argentina, Brazil, Paraguay and Uruguay).

Technical barriers to trade were identified as particularly intractable and difficult to address. A dedicated work programme was established to look at opening up trade between SA, India and Brazil.

International best practices on small business development were identified as another important program in IBSA. The DTI also focussed on the coordination of business participation whereby businesses interacted with their counterparts. In October 2007 there would be a summit of heads of state where progress would be reported regarding IBSA.

Discussion
Prof B Turok (ANC) asked why it was that SA was persuaded to think that it was possible to have a fair rule based international system. It seemed as if international players like the US did not want a fair rule system.

Dr Davies replied that through a multi lateral and rule based system there would be a better opportunity for negotiation and securing changes beneficial to developing countries than through bilateral negotiations. The only way to address the needs of developing countries was by gathering forces through the multilateral system. Declarations like Doha did not always result in a follow through on every single issue. SA would however continue to focus on gains to be made but it was going to be a hard battle.

Prof Turok said that even if an agreement were reached, there was no guarantee that there would be compliance by the EU or the US. Evidence in terms of agricultural subsidies and farmer support suggest that even if the major players appeared to comply, they undermined compliance by other means.

Dr Davies replied that there needed to be a recognition that there was a progression with both industrial tariffs and agricultural issues. In negotiations there were matters of high tariffs against competitive products from developing countries, subsidies on exports which should be eliminated and reduction of production based subsidies. This would not mean that all subsidies would be eliminated. If G20 got its way, the US would still be able to have subsidies legally through the WTO. Even without subsidies, there were technical barriers to trade and standards which were issues that needed to be addressed in the future. The objective was to make achievable headway through negotiations.

Prof Turok said that the emphasis should be on developing countries but that it was not.  Development economists were saying that developing countries wanting to industrialise, had to have a degree of protection. The EU and US had protection policies but developing countries were not allowed to protect. SA as a developing country needed to stand firm and insist on its right to protect infant industries and other industries essential for future development.

Dr Davies replied that developing countries needed policy space to employ tariffs. SA did not need high tariffs across the board but tariffs informed by the SA industrial policy.

Prof Turok also asked why SA should be so sensitive about the US mandate and of time potentially running out for negotiations to be completed. SA should not take cognisance of this issue but should proceed with negotiations without feeling pressured by the US.

Mr S Rasmeni (ANC) asked what the window of opportunity entailed and who was giving the message out to others.

Dr Davies replied that the “window of opportunity” was a phrase being used within the context of WTO. A number of timeframes however existed within which issues might be settled. The US was an important player that needed to be part of an agreement. The US had a Trade Promotional Authority that has to be renewed. If there were no agreement, one would be effectively negotiating with the US Congress who would make amendments line by line and product by product. The US used the positions their legislature would take during negotiations. The SA legislature was not as prominent in debates compared to the US legislature. Negotiators should take issues back and sell it to their legislature.

Mr Rasmeni asked why the US would have laws and trade laws that prevented negotiations and what the position of others groups like the G20 was.

Mr Rasmeni wanted to know if there was anything that SA could do to have laws similar to the US to protect the SA economy.

Mr L Labuschagne (DA) asked what would happen if no agreement was reached. He wanted to know what the consequences would be and what one would do. He was also interested in China’s position, given that this country was the strongest member of the developing world.

Dr Davies replied that some opportunities would be lost. There would however be bilateral agreements which would have to be carefully designed. Alternatives were not simply to agree to US and EU demands but to explore other changes, with for instance China, within the global context.

Mr D Dlali (ANC) said that US would be giving more subsidies to farmers to assist them in producing more maize and products to make bio fuel. He asked what guarantee SA had that the US would comply. Farmers in SA were not subsidised. There would be more demand for bio fuel products and the EU might want to follow the same route.

Dr Davies replied that the US was also developing a new Farm Bill which would be shaped by the WTO process. The US would add new things into their Farm Bill if they did not get what they wanted through the WTO process. Bio fuel was an important issue. Brazil was competitive in the bio fuel industry and they might take steps to support their farmers. A new generation of bio fuels would not be made from food crops but from non-food crops.

Mr Carim said that global rules were important. The current rules inherited from previous rounds were shaped by developed countries and the motive for negotiations was to address imbalances within the current rules.

The Doha declarations were only a mandate and details had to be negotiated. Doha also provided developing countries with a protective mandate to negotiate and to ensure that the needs of development countries stayed on the agenda.

International negotiation dynamics had changed. In the past developed countries forced agreements with developing countries but with the emergence of the NAMA 11 and the G20 developing nations, things have changed. Technically sound positions could be developed to resist the developed countries.

It was important to try and conclude negotiations as soon as possible because the current system was prejudiced against developing countries. The content of negotiations was also important.
Attempts towards developing a fairer international system, was part of a long-term process.

Dr Rabie asked for more information on the exclusion of competitive SA products which the EU indicated should not be part of duty free and quota free imports from SADC.

Dr Davies replied that SA got access on most industrial products to EU markets with the exception of aluminium where there were some difficulties. The EU opened their market to some SA agricultural products but not to others. There were some lines of agricultural products where the EU would be prepared to provide access for SA but they would want something in return. Trade negotiations involved hard bargaining and SA should not accept that other countries would help SA.

Mr Carim said that there was about 300 agricultural tariff lines where SA had no access to EU markets of which ten were very important to SA. Important lines included sugar, flowers, canned fruit, oranges, wine, pears and fish. There was an attempt by DTI to open these agricultural lines with the EU.

Mr Dlali referred to the countries which chose not to join SADC and noted SA’s involvement in the DRC. He asked what SA’s view was on cooperation with the DRC. He felt that the DRC should comply with the rules of the game.

Dr Davies replied that he did not know exactly what the DRC’s position was.

Mr Dlali said that there seemed to be not enough involvement with Angola. An opportunity was missed given that Angola was an oil rich country.

Dr Davies replied that Angola had signed the protocol but they had not made an offer yet. They indicated that they would make an offer before the end of 2007. SA had significant bilateral relationships with Angola with a growth in trade taking place.

Mr Dlali referred to the intention to develop a United States of Africa and said that there did not seem to be a common position amongst SADC countries. What was the possibility for developing a United States of Africa if there was no cooperation within SADC, with some countries deciding to join ESA?

Dr Davies replied that the DTI was doing some work on the United States of Africa. Conditions for integration were limited within developing countries and efforts should be focussed on practical real economy coordination. Through cooperation, developing regions could make improvements towards integration. SA wanted to see the FTA being introduced and there was a focus on sectoral programs and bilateral spatial development initiatives to assist with integration. There was a need to have debates and develop strategies for integration.

Mr Dlali said that it seemed as if agriculture was always a focus point during international negotiations. He asked what the prospects were for meeting the deadline set by the EU on the SADC-EU EPA.

Dr Davies replied it was possible to meet the deadline and reach a trading goods agreement. Difficulties were foreseen if the EU continued to push for new generation issues. Engagement with EU parliamentarians might be useful to assist with the SADC-EU EPA.

Prof Turok was appreciative of the frank presentation by Dr Davies. Propaganda about opportunities was belied by the unfavourable position between SA and the US and the EU. The Committee needed to take this issue seriously and say something about globalisation. The Committee should not leave everything to the Minister but it should hold a debate in the house and come up with a position as to what political intervention was required.

Prof Turok asked how much real change was taking place on the ground to integrate SADC. He requested an update on actual changes in SADC integration as opposed to discussions about integration.

Mr Carim said the SADC trade imbalance had not changed with trade remaining in SA’s favour. SACU had opened up its market for up to 95% of tariff lines to SADC members but they were not able to take advantage of this due to a lack of productive supply capacity. It was necessary to build the supply capacity within SADC to supply the SA market.

Prof Turok said that the ethos of NEPAD was its socio economic framework not its individual projects. He felt that there should not be a division of labour between the DTI and the Department of Foreign Affairs. The departments should come to an agreement regarding where the centralisation of power should be.

Mr Carim said that the Development Bank of Southern Africa provided overall coordination for NEPAD projects. The competencies to support NEPAD was spread amongst different government departments and the challenge was effective coordination.

Mr S Njikelana (ANC) wanted to know what impact the pressure to conclude the current round of the SADC-EU EPA negotiations by the end of 2007 would have on the Doha round of negotiations.

Dr Davies replied that there was a link between SADC-EU EPA and the Doha negotiations. Choices made in regional integration issues would have broader repercussions.

Mr Njikelana suggested that a comprehensive workshop be held on international trade with an emphasis on a parliamentary perspective. He said said that the Committee should continue supporting the DTI and playing an oversight role. The development of a Trade Promotion Framework should be explored through which the DTI would be able to interact. There should be a specific focus on the WTO. It was also important to get advice from like-minded parliaments. Parliamentarians in Europe needed to be approached through the SADC Parliamentary Forum for an urgent meeting or to send a letter of concern about how the executive were negotiating.

Mr Njikelana proposed that the Portfolio Committee of Foreign Affairs be approached about NEPAD. A campaign should be promoted for the demarginalisation of Africa. The DTI should explore the upgrading of the SA mission at Geneva.

Mr Rasmeni asked who would benefit between the EU and SADC in terms of the SADC-EU EPA.

Dr Davies replied that benefits by countries would be determined during negotiations. SA would need to capitalise on gains made during these negotiations.

Mr Rasmeni asked why there were IBSA negotiations before full SADC integration. SA was already benefiting from trade relations with the EU through SACU. He wanted to know why SA was being pressured to be part of the EPA negotiations.

Mr Martins asked for information about Mr Faizel Ismail, the Head of SA’s WTO delegation. Some years ago there was a discussion to ensure that Mr Ismal had the status of an ambassador to ensure that he could engage with other trade ambassadors at the highest level.

Dr Davies replied that Mr Ismail was doing sterling work in the WTO and that the DTI was very appreciative of his work. SA owed Mr Ismail and enormous debt for his work at the WTO.

Mr Martins asked if he should pose the question regarding Mr Ismail to the Minister or to the President. He indicated that he was going to follow up on this issue.

Dr Davies welcomed the proposals to have a workshop on international trade. Dr Davies thought that SA was not well served in the national discourse on international trade matters. Often opinions would be raised from other parties but not a South African perspective.

Dr Davies said that the way negotiations would unfold over the next four months would have a significant impact on SA’s prospects for trade promotion. SA needed to improve its exports of value added products and the imbalance of trade between SA and other SADC members needed to be corrected. Dr Davies said that he would appreciate it if the Committee could raise awareness of international trade issues within SA.
              
Gambling Amendment Bill: Department Response to Submissions

Mr Johan Strydom, Chief Director: DTI legislation, presented the briefing which reflected DTI’s recommendations about the proposals made at the public hearings. He was assisted by Mr Fungai Sibanda (Acting Deputy Director-General, DTI) and Mr Themba Marasha (Acting CEO, NGB)

It was proposed that the long title be amended so that it stated clearly the objective of the Bill which was to regulate and curtail interactive gambling in order to protect society against the over-stimulation of the demand for gambling and to prevent of money laundering and protect minors. The objectives of the Bill were also clarified in Clause 4.

The DTI believed that there was much merit to the proposal to prohibit the advertising of gambling. It was proposed that Clause 15 be amended to prohibit advertising for interactive gambling. Likewise, prohibition on advertising should be extended to other forms of gambling that were currently regulated. Clause 15 should also be amended to ensure that illegal operators did not promote gambling in SA.

The DTI had reached an agreement with the Financial Intelligence Centre (FIC) on the prevention of money laundering. Certain provisions would be tightened to prevent money laundering.

Tighter provisions for age verifications would be developed. The responsibility for age verification would be on the provider.

Person-to-person (P2P) betting referred to two people who would approach a betting exchange and bet against each other. The betting exchange was a facilitator between two individuals. Betfair indicated to the Committee during the public hearings, that they would be excluded from doing P2P. There was nothing in the principal Act that provided for P2P betting exchanges. The investigation and policy processes in respect of P2P by the DTI was still a long way from completion. P2P betting was seen as a separate process and not as part of the interactive gambling in terms of the Act. P2P might be provided for in the Act once research and policy processes on it implications were completed.

The DTI had received a lot of technical comments from the Western Cape and other provinces. Proposed amendments were being considered by the DTI. Issues such as prescribed fees were however better placed in regulations and not in the principal Act.

Discussion
Prof Turok asked for clarification on foreign operators who should have a presence within South Africa.

The DTI proposed that foreign service providers should have servers and records within SA. The Financial Intelligence Centre Act would apply to interactive gambling operators to ensure monitoring and inspection.

Mr Labuschagne was concerned that the Bill did not adequately provide for record keeping. The requirements of substantial on-site investments, through the building of infrastructure, was not adequately addressed. Interactive operators should be required to make the same type of input required of land-based casinos.

The DTI said that the issue of local investments belonged to the licensing authority. It was the prerogative of the National Gambling Board to determine the conditions for getting a licence.

Mr Labuschange asked if internet gambling was declining and if any research had been done regarding this.

The DTI said that their research indicated that more and more people were participating in interactive gambling. The DTI had therefore developed amendments in order to regulate this industry.

Dr Rabie said that it seemed as if the DTI was in consultation with a number of agencies. He asked if there was any indication when the proposed amendments to the Bill would be tabled before the Committee as he wanted time to study the Bill.

The DTI representative said that these would be ready for the 31 August Committee meeting.

Mr Martins said that if necessary the proposed Bill would be given to the Committee earlier for study. He noted that in terms of the Committee’s programme, the Bill had to be finalised by 5 September 2007.

Mr Rasmeni was not sure if the moral issue was being adequately addressed given that it was raised passionately by stakeholders during the public hearings. Individuals should be protected from gambling.

Mr Martins pointed out that the moral issues were addressed within the Long Title of the Bill and the purpose of the Act. The intention was to curtail gambling and not promote it.

Mr Rasmeni referred to P2P betting and said that it happened within the community. He asked if P2P would be considered illegal.

The DTI answered that if any gambling activity was taking place beyond the parameters of the principal Gambling Act, it would constitute an offence.

Mr Martins said it was a reality that people were gambling. Policing everything that people did such as gambling, would however be very difficult.

Mr Labuschagne asked if it was clear that the licence conditions for interactive gambling operators would be the same as those for the land based casinos.

The DTI responded that it was proposed to put the conditions in regulations as prescribed by the Minister. Ministerial power was allowed to set criteria within which the National Gambling Board could then attached certain conditions for licences.

The meeting was adjourned.

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