EXPLANATORY
MEMORANDUM
ADDITIONAL PROTOCOL ON THE TRADE, DEVELOPMENT AND COOPERATION AGREEMENT BETWEEN
THE REPUBLIC OF SOUTH AFRICA AND THE EUROPEAN COMMUNITY AND ITS MEMBER STATES
1. BACKGROUND
1 .1. The
Government of the Republic of South Africa and the European Community and its
Member States (EC) signed a Trade, Development and Cooperation Agreement (TDCA)
on 11 October 1999. It came into provisional application on 1 January 2000 and
entered into force with effect from 1 May 2004.
1 .2. According to Art. 22, the agreement does not "preclude the
maintenance and establishment of customs unions, free trade areas or other
arrangements between the parties and third countries...". This article
provided room for the renegotiation of the SACU agreement as well as the
enlargement of the EU, with effect from 1 January 2007, from 25 to 27 member
states.
1.3. A legal basis had to be created for the administration of the TDCA with
respect to the two new member states. This is embodied in the attached
Additional Protocol that was signed on 10 October 2007, in Pretoria. Mr.
Mandisi Mpahlwa, Minister of Trade and Industry signed on behalf of South
Africa, and Mr. Louis Michel, Commissioner for Development and Humanitarian Aid
of the European Commission, signed on behalf of the Portuguese Presidency of
the European Union.
1 .4. The enlargement of the EC implies that South Africa is now locked into a
free trade area (FTA) with most of the countries in Central and Western Europe.
The only countries in Western Europe excluded from this are the members of the
European Free Trade Association (EFTA) , namely Iceland, Liechtenstein, Norway
and Switzerland. South Africa as part of SACU has negotiated with EFTA with a
view to establishing a free trade area between EFTA and SACU, basically
modelled on the FTA between South Africa and the EC. Now that SA is in a free
trade area with the EC, its offensive interests stand to benefit further with
the extension of the TDCA to the two new member states. At the same time
economic operators and consumers are to benefit from preferential imports from
those countries.
2. DOMESTIC AND INTERNATIONAL LAW
CONSISTENCY
The State Law Advisers of the Department of Justice and Constitutional
Development and the State Law Advisers (International Law) at the Department of
Foreign Affairs have been consulted on the Additional Protocol (legal opinions
are attached as Annexes "B "and "C" respectively).
3. RATIFICATION - SECTION 231(1) OF
CONSTITUTION
3.1. Both the EC and South Africa have agreed to extend the TDCA to the new
member states with effect from 1 January 2007. However, in accordance with
section 231 of the Constitution of South Africa, Presidential approval is
required in order for the Additional Protocol to be signed, ratified and put
into effect.
3.2. According to the Customs and Excise Act of the South African Revenue
Services (SARS), the protocol needs to be ratified by parliament first before
it can be implemented retrospectively from 1 January 2007. Confirmation has
been received from SARS that it is in a position to adjust the Customs and
Excise Act
retrospectively to provide for the extension of the TDCA tariff preferences to
the two new member states of the EC.
4. FINANCIAL IMPLICATIONS
4.1. A reduction of tariff duties will result over time in the Government forfeiting
revenues collected from import trade. Based on the agreed statistical reference
period, under WTO Most Favoured Nation (MFN) trade arrangements between SA and
the EU, before the entry into force of the TOCA, 57% of the total imports from
the EU had already been cleared under zero duties. This will increase to 86% of
total imports at the conclusion of the 12-year phasing-down period.
4.2. Government does not rely on trade taxes as a major source of income,
tariff policy adjustments are considered primarily in the context of trade
policy and industrial strategy developments. The latter lie at the heart of the
TOCA. This should also be weighed against the expected long-term positive
impact of the TOCA on the national economy and hence the possible growth of other sustainable income bases of the
Government.
5. IMPLEMENTATION
5.1 . SARS has indicated that communication on the date for the
implementation of the Additional Protocol to the TOCA will be published once it
has been ratified by the Parliament. SARS has also indicated that the
Additional Protocol can be implemented within the current organizational
framework and no new appointment of personnel will be required.
5.2. Legislation to implement the Additional Protocol has been prepared by
SARS. As implementing agent, SARS will implement the agreement retrospectively
from 1 January 2007, once Parliamentary approval has been obtained. All
operators that have had to had to pay normal customs duties during the period
before ratification will be reimbursed.