Does the European Free Trade Area Scare SADC?
tralac’s Hilton Zunckel comments on the Free Trade Agreement negotiations between the Southern African Customs Union and the European Free Trade Area.
Negotiators from SACU and EFTA are meeting in Geneva this week (13 September 2004), picking up on the postponement of these FTA talks in June 2004. South Africa’s neighbours in the SADC have felt some uneasy concern regarding the potential negative impact on their interests in face of the emerging free trade agreement between SACU and the EFTA states.
The round of negotiations on a free trade agreement between the EFTA States (Iceland, Liechtenstein, Norway, Switzerland) and SACU (South Africa, Botswana, Lesotho, Namibia and Swaziland) has been ongoing for just over a year now. The negotiators cancelled the June 2004 session that was to have been held in Oslo, at SACU’s request. This could be seen as an indication that the potential agreement may be in trouble. However, it should rather be seen as sensible for the SACU team to withdraw and regroup rather than stumble along when not fully prepared. This is indicative that SACU negotiators are maturing in the field of trade diplomacy. The pace of the negotiations will pick up with the current September session in Geneva, probably followed by a further session this year, with a closing of the deal set to be finalised before Christmas 2004. This week’s discussions will provide a clear indication as to whether this ‘Christmas Package’ will arrive on time. SACU negotiators seem serious about this Geneva discussion in that they have chosen not to cloud the talks by following them on directly with a session of discussions in Geneva at the invitation of the USA.
These negotiations are of value to both trade blocks, and the reason is European Union related in both instances. The EFTA states are in many ways de facto members of the European Union when it comes to trade and economic matters. The separation of EFTA and the EU is more meaningful on a political level and essentially stems from Switzerland’s international status as a neutral country and the fact that these countries do not see their agricultural sectors as common enough to collapse into the EU’s common agricultural policy. Recall that EFTA itself has a longstanding free trade agreement with the EU, this being the Agreement on the European Economic Area (EEA) signed in 1992. The preamble of this agreement recognises that their exists a “privileged relationship between the European Community, its Member States and the EFTA States, which is based on proximity, long-standing common values and European identity” and that in view of this the EU and EFTA will “provide for the fullest possible realization of the free movement of goods, persons, services and capital within the whole European Economic Area”. Given this position it is not surprising that EFTA would look to replicate the Trade Development and Co-operation Agreement (TDCA) concluded between the EU and South Africa. EFTA’s approach to SACU is as much about continued harmonisation under the EEA as it is the attraction of SACU being the first partner on the African continent with which the EFTA States are negotiating such a comprehensive agreement.
For South Africa specifically, an agreement with EFTA will complement the Trade, Development and Co-operation Agreement with the EU. A free trade agreement with EFTA will enable South Africa (and SACU) to harmonise its trade relations with the rest of Western Europe and provide the opportunity to expanded markets while placing a premium on economic development in the SACU region. This latter development dynamic is bolstered as the customs union now negotiates as a unit and not just for South Africa, this is due to the revision of the SACU Agreement in 2002.
In considering the existing TDCA between South Africa (and arguably de facto including SACU) and the EU, we note that South Africa is placed in a less favourable position than are other SADC countries. Recall that SADC countries enjoy non reciprocal access into Europe under the Cotonou Agreement (previously the Lomè Convention). While South Africa was admitted to the Cotonou Agreement, this admission was not extended to trade preferences. When considering the manner in which SA relates to the EU as opposed to the manner in which individual SADC states relate to the EU, if anything, the latter group should be little affected by the TDCA as their own preferences are essentially more attractive ‘TDCA Plus’ benefits. As the SACU - EFTA arrangement can be seen as a harmonisation of the state of trade already existing with Europe, it would be difficult to imagine that this process holds any threat to SADC. On the negative side one might speculate that in the revamp of the Cotonou preference arrangements, under the new Economic Partnership Agreements (EPA’s) which will eventually become reciprocal trading arrangements, the TDCA may act as a benchmark for these EPA’s. However, given the very different natures of the instruments (a trade tool and an aid tool) this is unlikely to be a serious concern.
On a wider front there may in fact be potential benefits to the whole SADC region if the EFTA - SACU agreement is able to promote the emergence of more equitable relations between Europe and developing countries in SADC. This is possible in the sense that trade is closely followed by investment and also that South Africa is able to improve its trade with EFTA from the export of raw and semi-processed goods to a more beneficial high value added export stance. To this end SADC stands to gain as SACU sources more of its inputs into these high value processes from the SADC region. This should in fact be expected as SACU duty phase downs for SADC imports under the SADC Trade Protocol are now well advanced in their reduction phase outs.
SADC should not be frightened by EFTA - the European trade dynamic is the one that Africans know best. Who knows, we may even develop a fetish for Ementhaler Swiss cheese and Norwegain salmon to compliment fine Cape wines, all of which are sure to be served with maize meal canapés at the FTA signing ceremony!
Hilton E. Zunckel
tralac Senior Researcher