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SOUTHERN AFRICA: Free Trade Deal Full of Potential – And Danger

Stephanie Nieuwoudt

CAPE TOWN, Aug 25 2008 (IPS) - The launch of a free trade area (FTA) within the Southern Africa Development Community (SADC) has brought the region one step closer to a regional customs union by 2010. But the launch of the FTA at the recent SADC heads of state summit was met with mixed reaction.

Dot Keet: "FTA could open door to EU imports" Credit:  Stanley Kwenda/IPS

Dot Keet: "FTA could open door to EU imports" Credit: Stanley Kwenda/IPS

According to Taku Fundira, an analyst at the Trade Law Centre of Southern Africa (TRALAC), the FTA is ‘‘intended to act as a catalyst for increased regional integration and to facilitate trade and investment flows within the region.’’ TRALAC is a think tank based in Stellenbosch near Cape Town.

‘‘Some of the countries in the SADC are being prevented from fully benefiting from the gains of trade because of the size and nature of their economies. By integrating, countries are able to exploit scale economies while at the same time restructuring the regional economy in ways that benefit the production base of the region.’’

However, one of the critics, trade specialist Dot Keet, told IPS that trade in the region is skewed in favour of South Africa – the strongest economy. ‘‘The trade deficits in the region are in South Africa's favour. Mostly South African companies are moving into and benefiting – in all sectors including communication, tourism, retail, trade, mining, airlines, banking, et cetera.’’

Keet is with the Alternative Information Development Centre (AIDC), a Cape Town-based non-governmental organisation focussing on development research from a critical standpoint.

She warned that many SADC countries are negotiating economic partnership agreements (EPAs) with European Union (EU) countries. ‘‘If there is a free trade area in the SADC region and the EPAs with its most favoured nation clauses are signed, it will open the doors to European imports,’’ Keet told IPS.

The ‘‘most favoured nation’’ clause in the EPAs requires African signatories to give the EU the same treatment as in future agreements with other countries signed subsequent to the EPAs.

‘‘It will be extremely difficult to monitor trade across porous borders – whether it is goods from SADC or Europe. Many of the SADC countries are willing to sign agreements which will undermine their own economic advancement. The EU is insisting on the liberalisation of finances, health and a number of services,’’ Keet explained.

‘‘Most of the limited export sector of SADC countries is heavily biased towards the European markets. EU countries threaten African countries with tariff raises on imported goods if the EPAs are not signed.’’

She added that, although South Africa is in a better position than the rest of the region as it has diversified its exports to South America, China and India, it is also reliant on Europe.

According to Keet, SADC countries are further compromised as they are heavily reliant on foreign aid. They fear that the millions of dollars that are annually poured into these countries will be withdrawn if they do not sign EPAs.

Nkululeko Khumalo, a researcher at the South African Institute of International Affairs (SAIIA) attached to the University of the Witwatersrand in Johannesburg, differed from Keet: ‘‘It is simply not true that the FTA will lead to European goods flooding the SADC markets. The FTA is about intra-SADC trade and outsiders are precluded from benefiting from it through rules of origin.’’

These rules translate into tariff duties for goods produced outside the region.

He added: ‘‘Since 2000, SADC countries have been implementing the provisions of the SADC Trade Protocol. They achieved the goal of liberalising 85 percent of goods within eight years. The establishment of the FTA is one of the targets set by the SADC countries before the establishment of the Customs Union by 2010.

‘‘Whether the Customs Union will become a reality within the next 18 months remains to be seen. There is too little time left."

According to Fundira of TRALAC, the FTA will aid increased intra-regional trade along with inflows of foreign capital – mainly from South Africa. ‘‘This will help to boost industrial development and the diversification of the export base. The FTA may also help to reduce uncertainty and improve the financial credibility of countries in the region. In turn this could boost private sector investment.’’

Before the SADC summit, South African finance minister Trevor Manuel in a speech to the National Assembly in Cape Town warned that the fact that several SADC members were members of other regional groups could become problematic, as each group had its own way of negotiating with EU members.

Manuel advised the different member states to decide on which regional grouping they wanted to be members of.

Khumalo also believes that membership of different bodies pose some challenges. Tanzania, for example, belongs to more than one grouping. He has suggested as a way forward that SADC and the Common Market for Eastern and Southern Africa (COMESA) create a mutual free trade agreement. This will assist countries that do not want to pick one membership and leave behind another.

In the end, it could help with trade integration across the African continent, Khumalo argued.

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