EPA Negotiations Trying on Regional Relations

At the end of December 2007 the WTO waiver which exempted the EU’s non-reciprocal trade arrangements with the ACP countries expired. In advance of this expiry there was a veritable flurry of negotiating activity over the last 3 months of 2007. For Southern Africa, the dust has far from settled within the SADC EPA configuration, but has cleared to the extent that some troublesome quirks have become visible in the aftermath.

The EU, using the WTO waiver as a justification, took a strong and, granted, disciplined stance that the December 2007 deadline would not be flexible. The implication was that the ACP would face a likely increase in duties into the EU, which in certain instances like Namibian beef, would have lead to a cessation of exports on 1 January 2008, if the deadline was missed. Naturally this placed an uncomfortable level of pressure on the ACP states to conclude the negotiations, or at least ‘initial’ interim agreements. This then begs the question as to whether the substantive provisions of many of the agreements were actually negotiated or merely conceded so as to ensure that crucial exports did not cease. More importantly this raises a red flag as to the sustainability of these arrangements in the medium to longer term without African countries reneging on them in the future.

Not unexpectedly, the European Union’s trade directorate has put a very positive spin on the results of the EPA negotiations. The DG Trade has reported that as of January 2008, the ‘overwhelming’ majority of ACP goods will enter EU markets with either improved EPA market access or continued duty and quota free access under the EU’s Everything but Arms initiative. This apparently translates into a position where 99% of ACP trade is free of any EU tariffs and 67 ACP countries have full duty and quota free access to EU markets. The position for South Africa, and arguable others, is certainly not that flattering.

The December result for the SADC EPA configuration clearly demonstrated that there were and there remain some serious difficulties in the finalization of the processes. In the SADC EPA configuration the SACU states Botswana, Swaziland and Lesotho initialed the interim EPA in November, with Namibia and South Africa holding back. In late December Namibia essentially capitulated in the face of the prospect that by not signing the text, Namibian beef exports to the EU would cease, with a loss of about R400 million per annum. Understandably Namibia ‘made a plan’ under last minute diplomacy and initialed the interim EPA. South Africa has still not signed up. For the non-SACU countries in configuration, Mozambique initialed while Angola has been unable to do so for technical reasons which are likely to be ironed out.

SADC was divided geographically into two separate EPA configurations before the substantive negotiations began. Now SACU is also divided, and Tanzania has migrated from the SADC EPA into the ESA group. The fact that Botswana, Lesotho, Swaziland and Namibia have signed up without South Africa is evidence of sorely divided customs union and points to a weighing by the BLNS countries of the benefits of EU market access and promises of future aid under the European Development Fund, against the current financial benefits of revenue transfers from the South African fiscus under the SACU revenue sharing arrangement. The divisions between South Africa and its neighbours on this score raises some very serious questions as to the effective operation; and even future continuation of SACU as a coherent entity, as these divided actions by the SACU member states patently breach the substance of the 2002 SACU treaty. This is something that SACU will have to address imminently regardless of how the EPA saga progresses.

South Africa’s central concern has been that the founding elements of the ‘SADC EPA Framework’ which established a common negotiating mandate for the SADC EPA States have been eroded, essentially on 4 fronts.

Firstly, South Africa will continue to be treated differently and less favourably in the EU market as compared to the other SADC EPA states hence perpetuating the historical mismatch in Southern Africa’s trade relations with the EU. This division also makes it exceedingly difficult for SACU to behave as a customs union with a common external tariff and common trade regime.

Secondly, SADC EPA configuration originally agreed that LDCs would not be required to offer reciprocity to the EU under the EPA. Contrarily, the EU pressed insistently and the SADC LDCs are now required to open about 80% of their tariff lines to EU imports. It is notable that this contradicts the LDC stance in the WTO. In the WTO context, the Doha Round is likely to grant LDCs with non-reciprocal duty free access to developed country markets. As an example at present, Mozambique will move form being open to the EU on 12% of its imports now, to a massive 80.5% henceforth, and this with immediate effect, absent of phasing in according to a recent Oxfam report.

Thirdly, under the SADC EPA States’ negotiating mandate it was agreed that Botswana, Lesotho, Namibia and Swaziland would adopt the terms of the South Africa – EU Trade, Development and Cooperation Agreement (TDCA) for offering market access to the EU on the understanding that their concerns with the TDCA would be fully addressed. In this regard the interim EPA has substantially reduced the number of BLNS sensitive product lines and runs roughshod over the concept of infant industry protection, which is firmly entrenched in the SACU agreement at present.

Fourthly, the original SADC negotiating mandate provided that so-called ‘new generation’ topics would not be included as binding obligations in the EPA. Contrary to this the interim SADC EPA obliges the signatories to negotiate binding services and investment chapters over the next 4 years. South Africa holds the opinion that these obligations create a new set of trade policy misalignments for SADC that will further hamper the regions own economic integration. In this regard it is notable to recall that back in 2003 African countries were applauded/accused for derailing the a Doha Round agreement at the Cancún Ministerial Conference, precisely grounded upon a refusal to engage on new generation issues. This begs the question as to what has happened to that fiery resolve now.

One of the sectors that will be particularly affected by the new liberalisation terms will be the agricultural sector. It was hoped and expected that the EU would eliminate export subsidies for on those tariff lines opened by the ACP. However, there is no provision in the interim SADC EPA text to this effect. To boot there is a provision in article 36.4 of the interim SADC EPA which ensures that ACP products do not benefit from ‘national treatment’ as regards agricultural subsidies provided in the EU. In this regard Southern Africa will continue to face EU agricultural subsidies both on their exports and on the imported products that they are now to reciprocate.

Quo vadis? It is likely that although South Africa has played tougher ball than its neighbours, leading to an effective split in regional unity and much, probably undeserved critique from these neighbours, South Africa will eventually fall into line albeit via some diplomatically sanitized politically palatable mechanism. This is premised upon the reality despite almost 15 years of effort at fostering African trade relations, the EU remains South Africa’s largest trading partner, and this economic reality will ultimately likely trump even the justifiable objections to the EPA arrangement.