SADC EPA Group - EC Negotiations:

Assessing the Emerging Outcome

30 January 2008, Pretoria

Introduction

1. At the outset of the Economic Partnership Agreements (EPAs) negotiations with the European Commission (EC) in 2002, SADC was divided. Four groupings emerged in the negotiating process: i) the SADC EPA Group comprising Botswana, Lesotho, Namibia, Swaziland (BLNS), as well as Mozambique, Angola and Tanzania; ii) East African Community (EAC) comprising Kenya, Uganda; iii) Central African Economic and Monetary Community (CEMAC) that includes DRC; and iv) the East and Southern African Group (ESA) comprising the all other SADC members.

2. As the negotiations proceeded, Tanzania was compelled o leave the SADC EPA Group and negotiate as part of the EAC. The emerging EPA outcome now creates a series of new policy divisions in SADC, among the SADC EPA Countries as well as in SACU.

3. South Africa joined the SADC EPA Group in February 2006 in an attempt to resist further fragmentation in SADC. We had hoped to align the Trade, Development and Cooperation Agreement (TDCA) free trade agreement that we have with the EU to the SADC EPA arrangement. In particular, we saw the negotiations as an opportunity to consolidate the customs union in SACU vis a vis the EU.

4. This brief provides some background to South Africa’s participation in the EPA negotiating process. It then assesses the emerging outcome before outlining, in broad and brief terms, possible next steps and options.

Some Background

5. South Africa entered the EPA negotiations in an effort to harmonise the TDCA with the region’s trade relations vis-à-vis the EU, in an effort to strengthen regional integration in SACU and SADC. We were under no legal obligation to do so as the TDCA is the basis for our trade relations with the EU.

6. Together with the SADC EPA States, we developed a negotiating framework that was agreed by Ministers in February 2006. The Framework, submitted to the EC in March 2006, contained four key elements. First, since the BLNS were de facto subject to the TDCA by virtue of being part of the SACU customs union with South Africa, they would accept the TDCA as a basis for a negotiating outcome so long as their sensitivities under the TDCA were addressed. Second, the other SADC EPA Members (Mozambique, Angola and Tanzania), all least developed countries (LDCs), should be allowed to continue to receive non-reciprocal duty free quota free access to the EU under the EC’s Everything but Arms initiative that extends such treatment to all LDCs, globally. This is consistent with the negotiating objective taken by LDCs in the WTO negotiations, and one supported by South Africa.

7. Third, all SADC EPA States, including South Africa, should obtain duty free market access to the EU – a harmonisation of the region’s access to the EU at the best available conditions. South Africa conceded that this should not be achieved at the expense of any other SADC EPA Member, and recognising the EU’s sensitivities in agriculture, this could be obtained over a transitional period. Fourth, all new generation trade issues (services, investment, procurement, intellectual property, competition, labour, and environment) should be subject to non-binding cooperative arrangements to allow time for building policy, human and institutional capacity at national level. The development of national positions should then be followed by processes for regional convergence to build regional markets and common regional policies. We argued that sufficient progress on both processes at national and regional level should be prerequisites to entering into negotiations with the EC at a future date.

8. The EC responded to this framework in March 2007 (one year later). While it agreed to include South Africa in the negotiations, it challenged each of the SADC EPA negotiation objectives.

Emerging Outcome

9. The shape of the outcome shows that South Africa will not obtain duty free market access (our tariff negotiations are based on reciprocity). LDCs will reciprocate tariff concessions in line with WTO obligations as interpreted by the EC (80% coverage). BLNS sensitivities are narrowly addressed. All SADC EPA States, except South Africa and Namibia, agreed to negotiate services and investment, and have further agreed to consider competition and government procurement for future negotiations. In this way, a new generation of division has opened in the region’s trade policy.

10. As the negotiations have unfolded, it is increasingly clear that different SADC Members will be required to undertake different obligations to the EC under the various EPA configurations. While this is technically possible under the free trade area that currently defines the SADC integration process, the situation becomes more complex if SADC seeks to achieve customs union status. Moreover, differential obligations to the EC on new generation issues (services and investment) will complicate efforts to achieve common positions among the SADC countries.

11. The emerging negotiating outcome as set out in the Interim Agreement is deeply problematic in two basic respects. First, in negotiating terms, it involves a set of negotiating concessions that is inequitable and highly imbalanced in the EU’s favour. Second, it poses the most serious and immediate challenge to advancing regional integration in Southern Africa. The Interim Agreement was initialled in December by Botswana, Lesotho, Swaziland and Mozambique. Namibia initialled with reservations on the understanding that they will re-open contentious aspects of the Agreement. Angola has not yet initialled the Interim Agreement.

Tariff Negotiations

12. The tariff negotiation involves an exchange where SADC EPA States would simply retain their existing Cotonou market preferences in the EU but must, for the first time, substantially open their markets to EU exports, accept an extensive set of onerous legal obligations to regulate their markets, and establish new institutions that will oversee the implementation of the EPA agreement. The EC offered all SADC EPA countries, except South Africa, duty free quota free access to its markets for all products except rice and sugar which are subjected to a transitional period. While this is impressive in form, in substance all ACP countries account for less than 2% of EC world imports. In Southern Africa, aside from South Africa, products of significant export interests include beef (Namibia and Botswana) and sugar (Swaziland). In exchange, the EC has secured open 80% of the SADCEPA market to EU exports.

13. Important tariff negotiation took place between South Africa and the EC. The EC had offered to grant South Africa a zero tariff over a three year period on the last outstanding industrial tariff lines (6 aluminium lines).The EC was still to respond to South Africa’s request to rectify technical errors in nine jewellery and two textile lines. We reached a reciprocal deal on trade in fish. The EC offered a good deal on a range of agricultural and processed agricultural products including an immediate zero tariff on 126 products due to be liberalised in 2010. It also offered alignment with the good deal Chile has with the EC on canned and fresh fruit, a better offer on cut flowers; duty free quotas for ethanol and some beverages. In exchange, the EC requested that South Africa accelerate the phase down of agricultural products due to be liberalised under the TDCA in 2012 to 2010.

14. The difficulty was that this EC offer came on 8 November leaving little time to consult with stakeholders in South Africa and for the other SACU Members to concur. As we did not have sufficient time, the EC removed the latter offer from the table one week later. In sum, tariff negotiations between the South Africa and the EC are unfinished and the TDCA remains the basis for our trade.

New Generation Issues

15. The Interim Agreement also contains a commitment to continue negotiations towards a “full EPA” in 2008. In this way, the SADC EPA States have also had to agree upfront to accept new disciplines on services and investment, and future negotiations are envisaged in government procurement and competition policy.

16. Our opposition to including these issues in the EPA was spelled out in the original Framework Document agreed by the SADC EPA Group. First, there is no compulsion to negotiate the so-called new generation trade issues under the EPA to meet the requirements of WTO compatibility. Neither the Cotonou Agreement nor the TDCA contain any obligation in these areas. Second, some new generation trade issues are currently under negotiation in the WTO (services, IP, and environment), while others have been excluded (investment, competition, procurement, labour). Third, SADC EPA Member States have limited institutional and negotiating capacity, which would be severely strained if these issues were to be negotiated under the EPA. Further, new generation trade issues would pose serious policy challenges as SADC has no common policies in these areas. Negotiating these subjects under such conditions runs the risk of delivering unbalanced outcomes that may be prejudicial and limit national developmental objectives and policy space, and outcomes may foreclose prospects for deeper integration in SADC and SACU. Fourth, outcomes could result in obligations that go beyond those agreed in the WTO (WTO-plus), and introduce into the bilateral context, issues that contributed to the failures of Cancun (investment, competition and government procurement) and of Seattle (labour and environment). Moreover, by negotiating these issues bilaterally, SADC EPA Member States would be complicit in bypassing WTO negotiations or prejudging its negotiating positions in the Doha round in areas of services, IPR protection, and environment where multilateral negotiations are ongoing

17. Our approach was that SADC EPA Member States would be prepared to engage these issues in an appropriate framework. This framework should focus on technical exchange and cooperation where the EU could assist in the development of SADC institutional, policy and legislative infrastructure. This may extend to the development of common policies in SADC to foster regional integration. In recognizing that these issues are important dimensions of economic governance, SADC EPA Member States propose a cooperative engagement with the EU. Such cooperative arrangements would not extend to negotiations nor involve any substantive obligations. Furthermore, we argued that any final agreement in these areas would not be subject to dispute settlement under the EPA.

18. Other SADC EPA members shifted position on these issues. Initially, the SADC EPA Members, except Namibia and South Africa, indicated that they would consider committing to negotiate only in services so long as they received adequate technical assistance. In the final negotiations, under considerable pressure, these Members committed to immediately enter negotiations in services and investment without any binding upfront commitment for technical assistance from the EC, and they committed to negotiate competition and government procurement in future.

Legal and Institutional Issues

19. The Interim Agreement establishes the legal, institutional and market prerequisites for a new regional project in Southern Africa. It creates differential policy and institutional obligations among SADC and SACU Members vis a vis the EU and, thereby, drives a series of wedges in the ongoing regional integration projects in Southern Africa. Taken together, the EC market and legal-institutional proposals will profoundly complicate ongoing SADC and SACU integration efforts.

20. The EC seeks to define Parties to the Agreement as the EC and EU Member States on one side, and the SADC EPA States as a single Party acting collectively, on the other. This presumes a legal and institutional basis for decision-making among the SADC EPA States that does not exist. The EC also proposes new regional institutional structures to implement the agreement. It is not clear how these relate to existing SADC structures or to national competencies.

Other Contentious Issues

21. MFN Clause: The EC proposed both sides extend any advantages offered to any other trading partners in future negotiations to each other. The SADC EPA States, except for South Africa, will have duty and quota free access to the EC under the EPA and therefore cannot receive anything more from the EC if the latter negotiate a more preferable arrangement with others. South Africa may gain but only in agriculture. Conversely, the clause means that when we negotiate a deal with any other large trading partner (developed country or countries/grouping accounting for more that 1% of global trade; i.e. Mercosur, India, China) any more advantageous tariff concession we offer must be extended to the EC. This goes to the heart of our trade policy sovereignty, limiting our negotiating leverage and options. There may be technical means to limit the effect of this clause but the overall effect is clear. No other partner would be able to get a better deal than the EC in our market. This EC proposal was received late in the process (31 October 2007) was said to non-negotiable (a deal breaker). Aside from Namibia and South Africa, other SADC EPA States accepted it. The EC offered a compromise to exclude South Africa but as the others would remain under this obligation, the EC has effectively driven a wedge in SACU’s trade policy.

22. Export Taxes: The EC originally proposed that South Africa eliminate its export taxes (currently on diamonds) and then extended the demand to all SADC EPA States. South Africa agreed to accept the discipline already in the TDCA (not to introduce new export taxes) for itself, while Botswana and Namibia opposed its extension to their jurisdictions. The EC offered to compromise to allow those countries exceptions under demonstrable “critical” circumstances.

23. Political issues: The EC has introduced references to the political titles of the Cotonou and TDCA (human rights and weapons of mass destruction). The difficulty with importing these notions is that it upsets the balance of the negotiating outcome of those negotiations (by highlighting only some issues interest to the EC) and, more importantly, subjects them to more rigorous dispute settlement procedures in the EPA that includes the possibility of trade sanctions.

24. South Africa has identified a range of other contentious provisions including those related to safeguards, and customs administration that would also need to be revisited.

Further Developments

25. South Africa refused to initial the Interim Agreement on the basis of an overall assessment of the imbalanced and inequitable nature of the outcome. We have expressed strong reservations during the negotiations themselves, and at the SACU Council Ministerial Meeting, the Africa-EU Summit and the African Caribbean and Pacific Ministerial Meeting, in December 2007.

26. At the Africa-EU Summit and at the ACP Ministerial meeting, it became clear that many African and ACP countries were extremely concerned with the outcome of the EPA negotiations. ACP Ministers called for a re-opening of the Interim Agreement. While the Summit Declaration did not specifically mention the Interim Agreement, there is some recognition by the EU that the Agreement will need to be revisited. The AU Summit in Addis Ababa also called for the re-opening of contentious provisions. The extent to which the EC and, indeed, those Members that have initialled the IEPA, will agree to this proposal needs to be clarified.