European Union - Southern-Africa Trade Deal imminent?

18 May 2009

The signing of a finalised economic partnership agreement (EPA) between the European Union (EU) and Southern African countries appears to be imminent despite regional trade fragmentation remaining a danger.

Meetings took place in March between the EU and the Southern African Customs Union (SACU) countries (South Africa, Namibia, Swaziland, Lesotho and Botswana) plus Angola and Mozambique. Eight Southern African Development Community (SADC) Member States (DR Congo, Madagascar, Malawi, Mauritius, Seychelles, Tanzania Zambia and Zimbabwe) are negotiating in other regional EPA configurations.

The Current State of Play

The EU has argued that the previous trade regime in place between the two blocs contradicts World Trade Organization “free” trade principles. When the EU’s deadline for a new regime under an EPA expired at the end of 2007, continued preferential trade was guaranteed under an “initialled” interim agreement. That agreement now needs to be formalized.

While Mozambique and SACU members Lesotho, Swaziland and Botswana indicated they are willing to sign, Namibia, Angola and South Africa in January asked for a delay to reflect on the EPA. Their request was denied. Angola is not part of the EPA group yet but is consulted on the texts because of future cooperation. Namibia-which initialled the interim agreement at the last minute in December 2007-appears to have been swayed and is now leaning toward putting its signature to the EPA.

South Africa is refusing to sign the interim agreement, and it seems possible that the EU will press ahead without Africa’s economic powerhouse.

The Interim Agreement

The EU-SACU interim (goods-only) agreement contains:

• A single goods market access deal with Botswana, Lesotho, Mozambique, Namibia and Swaziland;
• A commitment to continue negotiating towards a full EPA including all countries of the SADC EPA Group;
• A fully fledged development cooperation chapter:

The EPA Full Agreement

Ongoing negotiations for a full EPA cover services and Investment as well as some provisions of the Interim EPA text such as:

• “Most Favoured Nation” or MFN clause,
• Export taxes,
• Free circulation of goods,
• Sustainable development,
• Infant industry, and,
• Cumulation of origin).

It was agreed that competition and government procurement negotiations would be put on hold until the region has achieved the necessary capacity. Full EPA Negotiations also cover tariff discussions between the EU and South Africa.

The EU has apparently made concessions regarding the protection of infant industries against competition from industrialised nations. The EU has also reportedly agreed to allow countries to continue to export taxes while the implementation of new taxes is open to discussion. Several countries in the SADC tax the export of raw materials in lieu of domestic value addition.

The most-favoured nation clause however is still unresolved. The most-favoured nation decree automatically confers any trade benefits under future agreements with other countries onto the EU as long as it concerns a country that contributes 1.5% or more to the world economy.

It is still unclear however to what extent the EU has succeeded in inducing concessions on the liberalization of “new generation” areas, such as government procurement, health, services, competition policies, investment and trade.

Including the “new generation” issues is not required for the deal to be WTO compliant. However, the EU bases EPA’s on the reciprocity principles of the Cotonou trade agreement with African, Caribbean and Pacific countries.

Opposition to the EPA

Opponents say such non-tariff liberalization will re-colonize southern Africa because it will benefit the established economies of the EU infinitely more than the developing markets of SADC. Others, however, maintain that beefed-up market access is exactly what the region needs.

Another crucial question will be how the EPA will impact on SACU and SADC’s Free Trade Area, which is set to evolve into a common market in 2010.

There are fears that the fragmented tariff agreements of SADC countries with the EU will destabilize those regional structures. At the moment the EU is negotiating with different blocs of SADC countries

Trade between the EU and Africa

South Africa is the biggest economic player in the region and the EU is South Africa’s most important trade partner. Trade has grown strongly since the Trade, Development and Co-operation Agreement (TDCA) was signed between the two sides in 1999. The objective of the TDCA is to create a free-trade area between South Africa and the EU over a period of 12 years, with the EU opening its market at a faster pace. In 2007 the EU exported around EUR 20.5 billion to South Africa (around 34% of total SA imports), and imported 30% of total SA exports (worth EUR 20.9 billion).

In addition to the TDCA, separate agreements on wines and spirits were signed between the EU and South Africa in 2002. These agreements provide for the reciprocal protection of wine and spirits names, and cover issues such as oenological practices and processes, and product specifications.
The EU is also the largest trading partner for the other members of the SADC Group.

In 2006, the value of total EU imports from them was about EUR 4.5 billion (8% agriculture; 10% fish; and 82% industrial goods). EU imports focus on few products such as diamonds (mostly from Botswana), petroleum (Angola), fish and beef (Namibia), sugar (Swaziland) and tobacco. In 2006, total EU exports to SADC represented EUR 2.8 billion, giving a positive trade balance for the SADC Group. SADC exports are diversified but nevertheless remain largely confined to agriculture and primary goods.

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