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TRADE-AFRICA: EPA Threatens to Tear Apart Oldest Customs Union

Aileen Kwa*

GENEVA, May 17 2008 (IPS) - The fate of the world’s oldest customs union, the Southern African Customs Union (SACU), is hanging in the balance as a result of the economic partnership agreements that most SACU countries have signed with the European Union (EU).

SACU governments are now trying to figure out how to prevent paralysis or even total collapse. But they are finding themselves divided. Some in the SACU want a retreat from the liberalisation agreements they have agreed to while others want to move ahead and deepen the integration with the EU, for fear of losing out on EU aid and market access.

Five countries make up SACU: South Africa, the largest economy in the customs union, and Botswana, Lesotho, Namibia and Swaziland (the so-called BLNS countries). SACU has been a customs union since 1910.

There have been tensions within SACU since 1999, when South Africa concluded Trade, Development and Cooperation Agreement (TDCA) with the European Union. The agreement will affect the BLNS countries negatively.

Since is determines that nearly all EU goods will eventually enter the SACU without duties, there will be considerable loss of tariff revenue for the BLNS: up to 50 percent for Lesotho and Namibia, 30 percent for Swaziland and 10 percent for the relatively more ‘‘developed’’ Botswana.

Dot Keet, a trade specialist speaking on behalf of the Africa Trade Network at a non-governmental organtions’ meeting on the EU’s free trade agreements in Brussels last month, also pointed out the negative effect of the TDCA on South Africa itself. IPS managed to get a copy of her address which explains, in part, South Africa’s present reluctance to sign the economic partnership agreement (EPAs) with the EU.

When the TDCA was signed, South Africa’s exports to the EU increased initially but, once the country started implementing lower tariff levels, EU exports also expanded. According to Keet, ‘‘trade deficits between South Africa and the EU are growing at about two billion euros per annum in the EU’s favour’’.

Keet said that EU agricultural exports into South Africa and SACU have increased by 50 percent since 2003. The entry of processed food imports has been most damaging: jams and tinned fruit and vegetables.

‘‘Parmalat (an Italian food company) came to South Africa and bought up the dairy companies in Western Cape. It terminated supply contracts with local dairy companies to give them milk. And these local companies closed down because Parmalat was importing powdered milk from the EU. This has had a dramatic impact on employment in the sector,’’ Keet explained.

In contrast, the EU is maintaining import tariffs and quotas on ‘‘sensitive products’’ to protect EU producers. Many of these, such as beef, are products in which South Africa and the other SACU countries have a competitive advantage.

Keet added that most of the new penetration from the EU into South Africa is in the financial services sector and other capital-intensive areas, such as high technology electronics. ‘‘This is reflected in the slow pace of employment creation in South Africa,’’ of great concern since unemployment rates hover around 40 percent (including those unemployed who have given up job seeking).

Interesting policy shifts are in the air, though. Keet revealed that, ‘‘the South African government is undertaking some changes in its domestic strategies. Amongst these are efforts to implement a more proactive industrialisation strategy with a more diversified trade strategy, especially in relation to other major economies of the South: China, India and Brazil and the rest of Africa.

‘‘Key players in the South African government are now concerned about some of the terms of the TDCA. They are in somewhat of a quandary as to how to deal with those commitments,’’ Keet said.

She went on to disclose that ‘‘South Africa is trying to get a revision of this with the Europeans. They are now arguing that in order to accommodate the interests of the BLNS, the TDCA needs to be revised for policy coherence within SACU and SADC (the Southern African Development Community).

‘‘The EU has responded that they will not renegotiate the TDCA and the only way the terms can be changed is in the context of a full EPA. This will mean the inclusion of new issues (services, investment, competition and procurement) as well as the MFN (Most Favoured Nation) clause, and this is very serious,’’ Keet cautioned.

The MFN clause will oblige South Africa to offer the EU the same market access terms it might offer to other countries, such as India and Brazil, in future bilateral agreements. The TDCA is a goods and agriculture-only agreement and, unlike the EPA, does not include these ‘‘new issues’’ nor the MFN clause.

From various reports, within the SACU, governments are now deeply divided about how to proceed in the EPA talks with Europe. Three of the BLNS countries, Swaziland, Botswana and Lesotho, are urging their neighbours to quicken the pace of negotiations with the EU. These countries intend to conclude full EPAs by the end of 2008.

From one inside source in SACU, who asked to be anonymous due to the sensitivity of the issues, the main motivating factor seems to be the fear of losing out on EU aid. If there are renegotiations of the interim EPAs (as some other ACP countries are urging), they want these to be done in the context of negotiations on full EPAs. This is also the position of the European Commission.

Namibia, on the other hand, would like the interim EPA renegotiated before it is ratified by the end of the year. South Africa supports such a strategy. According to SACU’s Executive Secretary Tswelopele Moremi, both these countries submitted a list of their concerns to the SACU trade ministers earlier this year regarding the EPAs.

Since there are differences between the liberalisation timetable of the TDCA and the EPA, the differentiated tariff structures will pose a major challenge for SACU in maintaining its common customs union.

Yet this is only the top layer of the complexities that loom ahead. Other regional integration issues that SACU is still working on could be completely torn to shreds if full EPAs are signed by some within SACU.

Internally, SACU has yet to harmonise its industrial and other economic policies. According to one South African governmental source who spoke on condition of anonymity, ‘‘the SACU harmonisation of industrial policies, rules of origin, customs procedures and any other area it might wish to harmonise in the future… all of these would be thrown into disarray and have the potential to worsen the (already challenging) situation.’’

*Expert writer Aileen Kwa is attached to the non-governmental organisation Focus on the Global South. This is the first article in a series of two.

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