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SA and the EU trade negotiations - A step closer

Financial Mail | Thursday, 20 Oct 2011

SA and the EU trade negotiations - A step closer

Claire Bisseker

Seven years of SA trade negotiations with the EU could be nearing an end with access for agricultural goods set to improve.

In negotiations to forge an economic partnership agreement (EPA), the EU has agreed to improve market access for about 80% of the agricultural products SA has asked to be accepted .

However, despite agreeing to raise access for 17 out of 20 agricultural products on SA’s list, the EU has yet to budge on wine, sugar and starch. SA is hopeful there will be further movement on these items at the next negotiating round in Lesotho next month.

“We’ve said these are important products and we aren’t prepared to simply have them excluded from the EU offer,” says SA’s chief trade negotiator on the EPA, Xavier Carim. “If we can improve the access of SA sugar exports to the EU, for example, it could have significant positive benefits for SA, depending on the exact quota they offer.”

Carim says SA’s agro processing sector has considerable capacity to expand exports and that the EU is an important market in volume and price for produce and wine. “Improving access to the EU, despite its current problems, should see benefits flowing to SA’s agriculture sector,” he says.

There is little more advantage SA can wring for industrial products, including automobiles, as it already has good access to EU markets for these, leaving agriculture market access as the main outstanding issue in the EPA talks.

The EU’s recent relaxation on agriculture, which it had been resisting for some time, combined with SA’s willingness to consider protecting certain EU unique geographic location products , so long as SA producers are not required to give up product names they’re using at the moment, has put the negotiations on a more positive footing.

There is now optimism from both sides that, after a fraught seven-year process, they may be on the home straight.

Since July 2004, the EU has been negotiating EPAs with blocs of African, Caribbean and Pacific countries to replace existing preferential trade accords with ones that are World Trade Organisation-compatible.

Part of the delay was due to the time it took to determine which Southern African countries would be party to the EPA. It was finally agreed that the SADC EPA group would comprise SA, Botswana, Lesotho, Namibia, Swaziland, Mozambique and Angola.

Once the EPA is signed it will replace the trade chapter of SA’s existing free- trade agreement with the EU — the Trade Development & Co-operation Agreement (TDCA). Under the TDCA, the EU was required to eliminate tariffs on about 95% of SA imports by 2010, and SA to eliminate tariffs on 86% of EU imports by 2012.

The parties have agreed on the principle of asymmetrical reciprocity. This means the EU will grant close to 100% duty-free, quota-free access to its markets, and that the SADC EPA Group must liberalise “substantially all trade” but can exclude sensitive products.

For SA, the tariff negotiations have been about how close SA can get to 100% market access. “We will offer much more than the 95% and SA will offer a little more than the 86%,” explains Axel Pougin de la Maisonneuve, head of the political, economic and trade section of the EU delegation in SA.

The EU recently imposed January 1 2014 as the deadline on the process, saying it would remove duty-free, quota-free access to EU markets for those SADC countries that hadn’t taken steps towards the ratification of the EPA by then.

“We wouldn’t have done this if we didn’t feel quite strongly that the EPA process will lead to agreements in the next few months and that we should be able to sign a deal with all parties by the end of the first quarter of 2012,” says Pougin de la Maisonneuve.

Carim agrees that it’s possible that the talks could be wrapped up by next year, saying the parties are “in a better position [to conclude them] than we have been for some time ”.

Carim says though there are a few issues which could still trip things up, the political heat that characterised the negotiations in 2007/2008 (when SA split from the rest in refusing to initial an interim EPA) has been replaced by a calm pragmatism.

And Pougin de la Maisonneuve says: “There’s an understanding that we’ve been talking long enough and must now look at our mutual interests and conclude an agreement. SA needs growth and job creation; the EU needs growth and job creation. One way is to increase trade.”

He points out that the EU is the main export market for SA’s manufactured goods, and that the volume of SA’s exports to the EU are bigger than the combined volume of its exports to China, the US and India .

Eurostat figures put SA manufactured exports to the EU at roughly 55% of its total exports, whereas SA’s exports to developing countries, including China, are hugely dominated by raw materials. This reinforces the importance of the EPA for SA, given that a key thrust of the New Growth Path is to raise the contribution of manufacturing to the economy.

SA has been strengthening investment and trade ties with China but this does not mean it has relegated the EU to the back seat , says Carim.

“The SA government constantly tells us that it’s important to keep strong political and economic ties with the EU,” confirms Pougin de la Maisonneuve. “It’s not a matter of diminishing the participation of the EU in the economy and having China take over. The EU is SA’s biggest trading partner and largest source of direct investment. It also has long-standing institutional relationships with SA. These don’t change overnight.”

 source: FM