Fragments of trade
Peter Draper and Gerhard Erasmus, Mail&Guardian, 14 April 2008
In late February, a diplomatic flurry in the regional trading firmament erupted. South Africa's Foreign Affairs Minister, Nkosazana Dlamini-Zuma, stated in Parliament that the European Union, out of fear over the Chinese trade "threat", was using economic partnership agreements (EPAs) with the EU to lock in old colonial trading relationships.
Subsequently Peter Mandelson, the EU Trade Commissioner, descended on Pretoria and Gaborone. What is going on?
EPAs are due to replace longstanding EU trade arrangements between the EU and the African, Caribbean and Pacific (ACP) countries. For decades the ACP countries benefited from non-reciprocal preferential access to the EU market; in the 1990s the EU opted to replace those arrangements with new World Trade Organisation compatible, reciprocal EPAs.
Arrangements for trade in goods Interim EPAs (IEPAs) had to be in place by the end of last year and in the case of the Southern African Customs Union (Sacu) and the Southern African Development Community (SADC), negotiations were problematic. They will resume soon to include trade in services and investment, another source of tension, as Pretoria remains reluctant to embark on such negotiations, whereas its Sacu partners, with the exception of Namibia, are reportedly ready.
The SADC IEPA was initialed by four Sacu countries -- Botswana, Lesotho, Namibia, and Swaziland but, significantly, not by South Africa. Although eight of SADC's 15 members participated in the negotiations -- Sacu plus Tanzania, Mozambique and Angola -- only Mozambique joined the four Sacu countries in initialling it. Tanzania sensibly opted to join the East African Community IEPA instead; Angola wants more time; and South Africa already has its own trade agreement with the EU.
Relations in Sacu, the oldest customs union in the world, are not well. Many in Botswana, Lesotho and Swaziland believe that they have been constrained by South Africa's dominance for too long. Furthermore, Sacu's trade integration programme stalled some time ago, amid a host of exclusions to internal free-trade agreements and trade facilitation problems and its deeper long-term integration plan is barely out of the starting gate. It is likely to remain fundamentally a revenue transfer mechanism, characterised primarily by South African transfers to its neighbours.
Yet the South African treasury is increasingly uncomfortable with these transfers and may seek to reduce or stop them altogether and replace them with a "development fund". This resonates with the department of trade and industry's irritation with its Sacu partners breaking ranks during the EPA negotiations. Some fear Sacu may break up as a result of these tensions; its dissolution would send a powerful political signal to Africa that South Africa is not serious about regional economic integration, and would have broader repercussions on South African investment into the continent.
These latter dynamics also bring the Department of Foreign Affairs and the Presidency into play on the question of trade matters.
For all these reasons, interest in the mooted SADC customs union could yet be revived. But that poses serious policy dilemmas for South Africa and its regional partners. Not least of these is how a broader common external tariff could be constructed. For this reason alone it is uncertain whether a SADC customs union could be formed at all.
Further abroad, regional leadership is in short supply: Kenya is finding it difficult to get back on track and Zimbabwe is on the cusp of chaos. So who can drive the regional economic integration agenda? What options does Pretoria, in its post-Polokwane navel-gazing phase, have to salvage the situation?
First, South Africa has to demonstrate regional leadership publicly by recognising its Sacu partners' rights, under article 31 of the Sacu Agreement, to sign the SADC EPA.
Second, South African can demonstrate goodwill by agreeing to negotiate aspects of the services and regulatory issues so dear to the EU. This would reduce tensions all round. Services are at the core of government's economic policies -- communications, transport, and energy in particular -- but because of supply constraints in the South African economy, these sectors need competition and foreign investment if our growth targets are to be met.
Why not liberalise those constraints that inhibit market access in these sectors and lock these in through a trade deal with the EU? The reciprocal nature of the negotiations could even result in concessions for South African service providers looking to move into the European market.
Such an approach could bring our Sacu partners back into the fold, win substantial goodwill in the EU and serve our economic interests.
Third, South Africa, and especially the Treasury, must accelerate plans for a SACU development policy by establishing a dedicated regional fund.
Finally, the EPAs may bring some benefits such as new policies for global integration and better regional structures. The latter require realistic membership configurations and respect for legal obligations. Such developments will only come about through visionary leadership.
Peter Draper is trade project head at the South African Institute of International Affairs. Gerhard Erasmus is senior research associate at the Trade Law Centre of Southern Africa
In late February, a diplomatic flurry in the regional trading firmament erupted. South Africa's Foreign Affairs Minister, Nkosazana Dlamini-Zuma, stated in Parliament that the European Union, out of fear over the Chinese trade "threat", was using economic partnership agreements (EPAs) with the EU to lock in old colonial trading relationships.
Subsequently Peter Mandelson, the EU Trade Commissioner, descended on Pretoria and Gaborone. What is going on?
EPAs are due to replace longstanding EU trade arrangements between the EU and the African, Caribbean and Pacific (ACP) countries. For decades the ACP countries benefited from non-reciprocal preferential access to the EU market; in the 1990s the EU opted to replace those arrangements with new World Trade Organisation compatible, reciprocal EPAs.
Arrangements for trade in goods Interim EPAs (IEPAs) had to be in place by the end of last year and in the case of the Southern African Customs Union (Sacu) and the Southern African Development Community (SADC), negotiations were problematic. They will resume soon to include trade in services and investment, another source of tension, as Pretoria remains reluctant to embark on such negotiations, whereas its Sacu partners, with the exception of Namibia, are reportedly ready.
The SADC IEPA was initialed by four Sacu countries -- Botswana, Lesotho, Namibia, and Swaziland but, significantly, not by South Africa. Although eight of SADC's 15 members participated in the negotiations -- Sacu plus Tanzania, Mozambique and Angola -- only Mozambique joined the four Sacu countries in initialling it. Tanzania sensibly opted to join the East African Community IEPA instead; Angola wants more time; and South Africa already has its own trade agreement with the EU.
Relations in Sacu, the oldest customs union in the world, are not well. Many in Botswana, Lesotho and Swaziland believe that they have been constrained by South Africa's dominance for too long. Furthermore, Sacu's trade integration programme stalled some time ago, amid a host of exclusions to internal free-trade agreements and trade facilitation problems and its deeper long-term integration plan is barely out of the starting gate. It is likely to remain fundamentally a revenue transfer mechanism, characterised primarily by South African transfers to its neighbours.
Yet the South African treasury is increasingly uncomfortable with these transfers and may seek to reduce or stop them altogether and replace them with a "development fund". This resonates with the department of trade and industry's irritation with its Sacu partners breaking ranks during the EPA negotiations. Some fear Sacu may break up as a result of these tensions; its dissolution would send a powerful political signal to Africa that South Africa is not serious about regional economic integration, and would have broader repercussions on South African investment into the continent.
These latter dynamics also bring the Department of Foreign Affairs and the Presidency into play on the question of trade matters.
For all these reasons, interest in the mooted SADC customs union could yet be revived. But that poses serious policy dilemmas for South Africa and its regional partners. Not least of these is how a broader common external tariff could be constructed. For this reason alone it is uncertain whether a SADC customs union could be formed at all.
Further abroad, regional leadership is in short supply: Kenya is finding it difficult to get back on track and Zimbabwe is on the cusp of chaos. So who can drive the regional economic integration agenda? What options does Pretoria, in its post-Polokwane navel-gazing phase, have to salvage the situation?
First, South Africa has to demonstrate regional leadership publicly by recognising its Sacu partners' rights, under article 31 of the Sacu Agreement, to sign the SADC EPA.
Second, South African can demonstrate goodwill by agreeing to negotiate aspects of the services and regulatory issues so dear to the EU. This would reduce tensions all round. Services are at the core of government's economic policies -- communications, transport, and energy in particular -- but because of supply constraints in the South African economy, these sectors need competition and foreign investment if our growth targets are to be met.
Why not liberalise those constraints that inhibit market access in these sectors and lock these in through a trade deal with the EU? The reciprocal nature of the negotiations could even result in concessions for South African service providers looking to move into the European market.
Such an approach could bring our Sacu partners back into the fold, win substantial goodwill in the EU and serve our economic interests.
Third, South Africa, and especially the Treasury, must accelerate plans for a SACU development policy by establishing a dedicated regional fund.
Finally, the EPAs may bring some benefits such as new policies for global integration and better regional structures. The latter require realistic membership configurations and respect for legal obligations. Such developments will only come about through visionary leadership.
Peter Draper is trade project head at the South African Institute of International Affairs. Gerhard Erasmus is senior research associate at the Trade Law Centre of Southern Africa