SA and European Union Trade Development and Cooperation Agreement: Additional Protocol: DTI briefing

NCOP Economic and Business Development

11 June 2008
Chairperson: Mr J Sibiya (ANC)
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Meeting Summary

The Department of Trade and Industry explained the need for the Additional Protocol between South Africa and the European Union Trade Development and Cooperation Agreement (TDCA). An additional two member states, Romania and Bulgaria, had joined the European Union and so the protocol had to be adjusted to include them. The main agreement was one of the most ambitious cooperation agreements ever concluded with a third country.  The full impact of the agreement would only be felt in 2012. It was clarified that there was a Joint Cooperation Council that dealt with any disputes between South Africa and the EU. South Africa, although part of the Southern African Customs Union, was in this agreement with the EU as an individual country. The point was made that the existence of this agreement had some adverse effects upon the other partners in the Southern African Customs Union, as they had to accept the tariff terms with the EU. The African, Caribbean and Pacific countries had a different agreement with the EU with more favourable conditions.

Members asked how the information would be communicated, who monitored changes in trade flows, monitoring of unfair trading, the position of the African, Caribbean and Pacific countries, the effect on the Southern African Customs Union, and how disputes would be adjudicated upon. The impact of reduction of tariffs on the national budget was discussed. The relationship between South Africa and the EU was described at length. The Most Favoured Nations Clause was explained, and the impact of the TDCA on the new member states to the EU was examined.

Members agreed to recommend ratification of the Additional Protocol.

Meeting report

South Africa / European Union Trade Development and Cooperation Agreement (TDCA): enlargement to protocol: Department of Trade and Industry (dti) Briefing
Mr Sandile Tyini, Director: Europe Regional Organisations: dti, began the presentation with a brief history of the Trade Development and Cooperation Agreement (TDCA) between South Africa (SA) and European Union (EU). The key features of the TDCA were outlined. The objectives of the TDCA included cementing South Africa’s trade relationship the European Union and providing certainty to SA operators. The scope of the TDCA was clarified. The nature of the TDCA was open ended and comprehensive. The TDCA was provisionally implemented on 1 January 2000 and the agreement was fully implemented on 1 May 2004.

Mr Tyini noted that the EU had seen six enlargements since economic integration. The EU enlargements were further explained. The original EU fifteen members were listed. The reason for the enlargement in 2004 was the addition of ten Central and Eastern European Countries (CEECs). The 2007 enlargements reflected the addition of Bulgaria and Romania. The purpose of the Enlargement Protocol was to create a legal basis for the extension of the TDCA also to Bulgaria and Romania. It ensured that Bulgaria and Romania benefited from the TDCA and that South Africa’s exports would likewise gain preferential treatment in the EU.

The policy implications were detailed. The trade between South Africa and Bulgaria from 2000 to 2006 was provided. The main exports from South Africa to Bulgaria were minerals, fruit and nuts, wool and sugar. South Africa imported from Bulgaria nuclear reactors, inorganic chemicals, electrical machinery and chemical products. Trade between South Africa and Romania for 2000 to 2006 was provided. South Africa’s primary exports to Romania were ores, iron and steel, electrical machinery and chemical products. Main imports from Romania were nuclear reactors, electrical machinery, iron and steel and articles of apparel and clothing. The trade implications were explained. The opportunities and challenges were given (see attached presentation). The consultations that the Departments had had were listed. The implementation was also explained.

Mr Tyini concluded that the TDCA was on the most ambitious cooperation agreement ever concluded with a third country. The full impact of the agreement would only be felt in 2012 after a complete transitional period.

Discussion
Ms M Themba (Mpumalanga; ANC) was glad that the Department would be going on road-shows to inform provinces of the agreements. However she asked who in the provinces would be invited to the road-shows and what type of communication would be used to inform them of the agreement.

Mr Tyini replied that traditionally the dti worked with provincial agencies for promotion of trade and investment. Where there were no agencies it would work with the relevant business Chambers. As soon as the protocol was ratified, the South African Revenue Service would publish it in the Government Gazette.

Ms Themba asked for further elaboration on the exercise of monitoring the change in trade flows.

Mr Tyini replied that he personally did the monitoring and provided reports to the Ministers.

Ms L Ntemba (Northern Cape; ID) asked what South Africa could do stop flooding the markets,  would those measures negatively affect South African markets and also would those that were flooding the market have other options to sell their products too.

Mr Tyini replied that generally when a country entered into a free trade agreement, it would be opening up its markets to opportunities. That meant that less tax was paid on products, but it also meant that it had to be reciprocated. A necessary corollary was that manufacturers would have to be exposed to competition. The provision of a safeguard was monitor the situation if a country was trading on an unfair basis. The safeguard measure would raise tariffs and reverse the opening of the market. The International Trade Administration Commission (ITAC) was responsible for such monitoring. If there was a surge of products from a particular country into South Africa and it could be proven that it was this surge of products that was adversely affecting the South African economy, then such safeguard measures would be instituted. This was part of the agreement.

The Chairperson noted that as they were discussing the Enlargement Protocol issues surrounding the EU agreement had come up. When South Africa became a democratic country in 1994 the EU was already in agreements with the African, Caribbean and Pacific (ACP) countries. When South Africa wanted to participate in that agreement, EU thought South Africa a slightly better developed that the ACP countries, and decided to enter into an agreement with South Africa alone. He asked if that meant that the ACP countries went into an agreement collectively, or did they also enter into agreements individually like South Africa.

Mr Tyini replied that the arrangement between the ACP countries and the EU was in existence before South Africa entered into the global economy. According to his understanding the EU made the arrangement with the ACP countries because they were developing countries and primarily former colonies of Europe. The EU tried to assist development through financial support and donor finance. As part of ensuring that the industry developed the ACP could export products into the EU economy duty free and quota free. Ultimately there would be no restrictions for the ACP countries if they could meet the standards set by the EU. Many times, though, many of the countries did not meet the required standards.

South Africa was expected to meet the standards and the EU decided to change the details of the agreement because South Africa would be able to take advantage of these opportunities. South Africa was part of the Southern African Customs Union (SACU) with Botswana, Lesotho, Swaziland and Namibia.  They hoped that all trade agreements with the rest of the world would be done as a union, but because of the conditions in the EU trade agreement South Africa could not enter into a trade agreement with the EU as a customs union. Therefore everything that South Africa received for free through the agreement SACU would have to pay in terms of reduced tariffs.

The Chairperson said that, assuming the ACP entered into agreements collectively, he would like to know what was different about their agreement as compared to South Africa’s agreement with the EU.

Mr Tyini replied that the members of the ACP entered into their agreement with the EU as a collective. The Economic Partnership Agreements (EPAs) that the EU was currently negotiating with the ACP countries, and with South Africa, occurred because other developing countries that were not members of the ACP complained to the World Trade Organisation (WTO) that it was not fair that they were not given the same preferences as the ACP countries, and lodged a dispute. According to the WTO rules this arrangement was not legal. The EU conceded and decided to negotiate a new agreement. The EPAs required that other countries reciprocate by reducing their tariffs over time. 

The Chairperson asked how South Africa’s agreement with the EU affected trade agreements with the ACP countries that already had agreements with the EU.

Mr Tyini replied that there was a negative impact in SACU. SACU had external tariffs and products coming from the EU into SACU. Even though they agreed that they would not lower their tariffs, they were in fact forced to lower their tariffs by virtue of being in a customs union with South Africa. This meant that other SACU members had to apply the same tariffs as South Africa applied to the EU.

The Chairperson asked who would adjudicate in the event that there might be a disagreement or dispute between the EU and South Africa.

Mr Tyini replied that in the agreement there was a clause that dealt with dispute settlements. There was an arrangement between South Africa and the EU for an adjudication process, that included a dispute panel. This process included negotiations for who would be part of the panel and would be presiding over the panel. There was also a monitoring mechanism called the Joint Cooperation Council (JCC) that was co-chaired by the South African Minister of Foreign Affairs and the Commissioner for Development Aid within the EU. There were annual meetings held where the participants reviewed the trade agreements and policies and all other relations. It was only in the event that disputes could not be resolved in the JCC that they would go to a dispute panel. 

The Chairperson asked what would happen if the EU had a dispute with a South African product that perhaps did not pass their standardisation process. He wondered if there was any way for South Africa to appeal this decision or take other action.

Mr Tyini replied that for certain agricultural products there were certain sanitary and phyto-sanitary standards that were accepted internationally. The EU, however, were constantly revising their own standards and then would pass regulations. 

The Chairperson referred to the tariff reduction phase where government, over time, would forfeit revenue collected from import trade. He asked if there was anything that would compensate for that loss of revenue.

Mr Tyini replied that South Africa did not use tariffs at the border as part of the government budget. Tariffs did exist, as a trade relation tool, to manage trade relations and as such if South Africa were to significantly reduce tariffs it should not impact on the revenue of the South African economy. There would be no compensation. There was some development finance from the EU. The EU supported institutional development.

Mr D Mkono (Eastern Cape; ANC) mentioned that he had no problem with the Enlargement Protocol. He asked how stable was the agreement between South Africa and the EU, and if the EU regarded South Africa as an equal.

Mr Tyini replied that there were in existence the JCC, and Sub-committees on Trade, the Trade Cooperation Committee, Development Cooperation and political dialogue. Thus far matters had operated at an amicable level and interaction between the EU and South Africa had happened with mutual respect. If there had been any disputes they were resolved through the JCC. He thought that things had come to a head when South Africa expressed the view that the manner in which matters were conducted was not respectful of the other parties, during the EPA negotiating process. The EU was vigorously exercising their economic and political power to the disadvantage of the EPA negotiating process. Many countries in this region were dependent on the EU and there was a question of the deadline, which, if exceeded, would have meant higher tariffs on products from the EU. South Africa had managed to fight issues that the EU was instituting. The EU had demonstrated overwhelming power in the EPAs. This year there would be a summit level meeting between South Africa and the EU, where all issues and areas of cooperation would be discussed. South Africa was the only country that had refused the EPAs and had been labelled as wanting to keep the region in perpetual poverty. That had almost threatened the relationship with the EU.

The Chairperson mentioned that he was aware of a clause in the EPA that stated that in any agreements with other regions (such as the agreement South Africa had with India ) the same conditions should apply to the EU. He asked how this would affect SACU and the ACP countries and if there was room for revision.

Mr Tyini replied that this clause was referred to as the Most Favoured Nations clause (MFN) within the current EPAs. This clause meant that if South Africa were to agree on the current EPAs, and later make an agreement with India that had better terms because of a different relationship, then automatically those better terms had to be extended to the EU as well. The EU had identified such countries as Advanced Developing Countries.

Ms S Chen (Gauteng; DA) asked for clarification whether the TDCA extended to all the countries in the EU including the two new members, and if it expired in 2012.

Mr Tyini replied that when the EU entered into the TDCA it meant that those countries in the EU would have to renounce any other trade agreements they might have had. It also meant that all the countries that had agreements with the EU had to extend those agreements to the members of the TDCA after the process of consultation. If any country identified particular sensitivity it could inform the EU that the product was harmful to that country’s economy or perhaps reverse some of the tariffs. If more members joined the EU, then the agreement would automatically extend to those countries.

Ms Chen asked about the reserve list and when and how often would be reviewed.

Mr Tyini replied that at the annual meeting of the JCC there was a review of the trading arrangements and sometimes industry responded better to economies. When that happened - as it happened with the automotive industry in South Africa - the tariff had to be phased down. Occasionally industry was monitored and some products were taken off the reserve list.

The Chairperson read out the motion of desirability that the agreement be approved.

The Members resolved to recommend the ratification of the Additional Protocol.

The Chairperson adjourned the meeting.

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