Business Day, South Africa, 31 August 2005

New impetus behind a deal

Tim Cohen and Carli Lourens

NEGOTIATIONS for a free trade agreement between the US and the Southern African Customs Union (Sacu) stalled last year in an atmosphere of impasse rather than acrimony. But on the explicit instruction of President Thabo Mbeki, the talks are now on again and new, ambitious targets have been set for their completion, as well as a new plan for getting past the problems that plagued the last effort.

The mood is cautious rather than expectant, but a combination of political and economic factors in SA and the US suggest that the negotiations might have more impetus this time around.

From the South African side, a free trade agreement with the US was for a long time a low priority because the access granted for SA’s goods in terms of the African Growth and Opportunity Act (Agoa) by the Clinton administration - extended by President George Bush - are so generous, they diminish the sense of urgency for a new trade deal, which would inevitably require concessions on the Sacu side. Agoa covers close to 98% of SA’s total exports, so why bother?

The point typically made by US negotiators to this objection is that Agoa is not forever, while a formal free trade agreement would be. Yet Agoa has just been extended for the second time, so it seems understandable for already stretched Sacu negotiators to focus on other priorities, which include the Latin American trade bloc Mercosur, the European Free Trade Association, India and China. In addition, there is the Doha round of international trade negotiations, which ought to be the primary focus of all countries.

Florie Liser, assistant US trade representative for Africa, counters these arguments. First, she says, a real free trade agreement holds benefits for Sacu that go way beyond Agoa, including allowing SA’s companies to tender for government contracts in the US as though they were US companies. As for the Doha round, Liser says that with 148 countries involved, there is limited scope to move beyond limited issues. Large negotiating groups tend to agree only on the small sub-set of issues, the lowest common denominator on which they can all agree.

The other problem with Doha is whether the round will achieve anything at all. Faced with this frustrating incremental approach to trade negotiations at an international level, the US has been aggressively moving forward with substantial free trade agreements around the world, partly motivated by the success of the first major agreement with its immediate neighbours, Mexico and Canada, called Nafta. The “great sucking sound” of jobs disappearing south - a fear that politicians tended to bellyache about at the time - turned out to have little or no basis. However, the agreement was of huge benefit to Mexico, which has moved from being the 14th-largest to the 9th-largest economy in the world, partly as a result of the Nafta agreement.

Probably for this reason, candidates for free trade agreements with the US have come forward fast and furious. Since Nafta in 1994, the US has signed agreements with Jordan, Chile, Singapore, and Australia. An agreement with Morocco has been agreed on but is awaiting confirmation. The US congress has just - narrowly - endorsed another large-scale free trade agreement called Cafta with central American nations.

According to the original timetable, the US-Sacu agreement was supposed have been completed first, but just did not happen. Why not?

Like all failed agreements, opinions differ. According to Liser, when US trade representative Robert Zoellick met Sacu representatives in December last year, he told them that the US had a lot of flexibility about the substance of agreements on particular topics, including “asymmetry”, which means tariffs would decline faster for one party than for the other. What he had little flexibility on was the total scope of the agreement, which has to be all-encompassing in terms of the congressional mandate granted to the president. An all-encompassing deal would include such topics as intellectual property and government procurement, for example, and not just selected product tariff lines.

Sacu preferred what is called a “negative list” approach, similar to the approach adopted in the European Union-Sacu negotiations, in which each side starts off defining the products and issues on the table, at which point the bargaining starts on inclusion and exclusion. The US-Sacu negotiations then proceeded with an attempt to reach a general agreement on “modalities”, trade speak for an agreement on how the negotiations would be conducted.

Ultimately the result was stalemate.

In the press at the time, Sacu negotiators suggested that black economic empowerment was a sticking point. Liser says this is “absolutely not true”, pointing out that procurement rules in the US include “minority set-asides”, which are loosely comparable to black economic empowerment efforts.

During this impasse, a number of political events have taken place which could provide the negotiations with some impetus. The first is that the Doha round is not going well, increasing the chances that proponents of free trade will resort to regional accords. The second is that Mbeki’s quest for higher growth is increasing pressure on institutions of state to be more ambitious in achieving reformist goals. And third, the US president has been granted a limited period in which to negotiate trade deals, normally a function of congress. And Bush, like Mbeki, is looking to his legacy.

Another of the problems of the US-Sacu negotiations was simply resources. US negotiators would arrive dozens at a time ready to discuss any topic under the sun, only to be faced with a handful of Sacu negotiators rushing from one set of negotiations to another.

To deal with this problem, negotiators have now agreed on smaller but regular meetings. The first will take place late next month, and then every six weeks. Liser says the plan is to approach the negotiations in “bite-sized chunks”. In addition, the idea is to dispense with the overall agreement on modalities, and to approach each issue on its own. Liser says she is confident, when negotiators see the substance of a possible agreement on, say, intellectual property, an agreement might not be that difficult. The plan is to complete the discussion in 17 months, in December 2006.

Government trade negotiators often speak fondly about the need for developing south-south trade, or between developing nations. This is important, but the US is the country with which SA has the largest trade advantage in absolute terms. SA’s exports to the US increased 21% last year, with Agoa exports constituting about a third of this increase.

Just one example is humble orange juice. In 2000, about 5% of orange juice drunk in the US came from SA. Now SA is the number one exporter of orange juice to the US. The quiet revolutions of trade often reconfigure the world underneath the headlines, which is what the free trade negotiators hope to achieve on a large scale this time.

Cohen is editor at large. Lourens is trade and industry editor.