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COSATU Submission onEU-RSA Trade Development and Co-operation AgreementPresented to a joint sitting of the Portfolio Committees on Trade and Industry, Foreign Affairs, Agriculture and Land Affairs, and the NCOP Select Committee on Economic Affairs, 26 October 1999 |
Table of Contents
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Appendix 1: Impact Studies |
COSATU welcomes the opportunity to comment on the European Union-Republic of South Africa Agreement on Trade, Development and Co-operation ("The Agreement"). The Agreement will have significant effects in shaping not only South Africa’s future trade relations but also our domestic industrial structure and employment levels. There will be substantial effects on the Southern African region, in particular on the Southern African Customs Union (SACU).
In making our submission we are mindful of the fact that the Agreement has already been signed and is set for implementation for January 2000. COSATU’s concerns around the process leading to the Agreement are reflected in section five of this document. Our understanding is that there is very little, if any, space for making amendments to the Agreement at this stage. We have thus not felt it necessary to engage in a detailed critique and counter-proposals on the substance of the Agreement. Beyond some general comments in this regard, we have focussed our submission on issues related to the actual implementation of the Agreement. We support many of the comments and recommendations made by the Parliamentary Committees on the Agreement1. COSATU also takes note of the fact that the Agreement deals not only with trade but also with development and co-operation. Our comments have, however, focused on the trade dimension of the Agreement. It is felt that it is in the trade area that the greatest threats are posed to the South African economy, while the other aspects of the Agreement are more supportive.
Existing tariff reduction policy should be reviewed, so that tariffs can be used more strategically as an instrument of an active industrial policy.
Overall and sectoral impact studies should be urgently produced to assess the likely effects of the Agreement on the South African economy and particularly on employment. We call on the Committees to make such studies a condition of ratification. If in future additional European countries look like joining the EU, appropriate impact studies should be done in advance.
Mechanisms should be put in place to overcome the EU’s Non-Tariff Barriers, including DTI liaising with business to identify obstacles and accelerated research and improvement on standards, quality, metrology etc.
Steps need to be taken to minimise negative effects on SACU countries arising from the Agreement. South Africa needs to assist in ensuring that the EU commitment of support translates into meaningful resources.
We are tabling specific proposals to deal with the negative effects of the Agreement. These include support for industrial restructuring, support for workers affected, use of safeguard mechanisms, and particular monitoring in relation to the agricultural sector.
DTI needs to accelerate initiatives to publicise the Agreement and empower South African firms to maximise growth opportunities. Programmes should be put in place to encourage export promotion, attract new investment to take advantage of the new trade preferences, and focus on opportunities for SMME’s.
The Joint Co-operation Commission to be established should include stakeholder representatives.
COSATU would want to participate in discussions on outstanding areas of the Agreement and to participate more substantively in future trade negotiations. This would include greater resource and information sharing, and participation in South African negotiating delegations.
COSATU believes that South Africa’s trading patterns should not be coincidental, purely a function of historical / colonial relationships, or based solely on grounds of maximum economic gains. Our trade relations need to be defined by our conscious choices as a nation: choices around which countries and regions we wish to forge stronger relationships with, and choices around the type of domestic economy we want to promote. COSATU appreciates the fact that this is a joint hearing also including the Portfolio Committee on Foreign Affairs, as trade is a key tool in taking forward South Africa’s international agenda, in particular the concept and practice of an African Renaissance.
The European Union is obviously a key trading partner for South Africa. Notwithstanding its importance, it needs to be recognised that trade relations are dynamic and that the relative importance of trading partners changes over time. In the long term, COSATU feels that it is appropriate for South Africa to cultivate stronger trading relationships with other developing countries, particularly those with which we share a similar world outlook. We take note of policy initiatives within the Department of Trade and Industry (DTI) to cultivate increased trade with the developing world, and we support further accelerated progress in this regard. In our view it would have been desirable for the SADC Agreement to have been implemented in advance of the EU Agreement. Nevertheless, it is important that over time we attempt to reshape our trading relations in line with our international vision.
Focussing specifically on the trading relations between South Africa and the EU, this relationship is again a dynamic one upon which the Agreement will have a profound effect. The issue is at one level about the size of the trade flows in each direction – what will be the relative effects on our exports to and imports from the EU? A second dimension is in terms of the content of the flows – will we be exporting mainly primary products in exchange for high value added goods? There is a danger of South Africa’s productive capacity being locked into a particular mode. COSATU views it as a challenge for South Africa to transform colonial trading relationships and for us to move up the value-adding chain.
An export strategy based on primary products makes the South African economy particularly vulnerable. There is a general decline in the world prices of primary commodities (or at least these prices have not increased in line with the prices of manufactured goods), which has negatively affected developing countries reliant on them. Furthermore, the booms and slump of primary commodity prices (often over an approximately seven year cycle) can be destabilising for the economy, as can the inherent vulnerability of the agriculture sector.
A pattern of exporting principally capital-intensive primary goods while importing principally labour-intensive manufactured goods also deepens our balance of payments vulnerability. Domestic economic growth increases the demand for high value-added imports , worsening our balance of payments position.
South Africa need not accept that our comparative advantages are static, based on existing factor endowments. Such an approach would tend to favour for example the export of mineral based primary products, based on our endowments of mineral supply and exceedingly cheap electricity. Forging a trade strategy based on existing price structures (allocative efficiency) tends to reinforce existing biases in our production structure. It also gives rise to a contradictory situation, where we export capital intensive goods despite our massive labour endowment, apparent in the extremely high unemployment rate.
An alternative approach of "dynamic comparative advantage" does not confine itself to the existing price and production structures, but seeks to maximise creative efficiency. For example, potential forward and backward linkages can be actualised through strategic state intervention. COSATU acknowledges the sensitivity of DTI to this debate, and the commitment of the government to move South Africa up the value-adding chain. Our concern is the extent to which the EU Agreement succeeds in advancing this objective. The comments on the Agreement by these committees see the greatest opportunities in respect of industrial products, and hopefully there will be potential for expansion in the more value-added products. Given the relative inaccessibility of the European agricultural market it could not be said that the Agreement per se locks South Africa into primary agricultural production.
In signing the Agreement South Africa has accepted certain risks – there are no guarantees as to the real outcomes for us. There is no definitive empirical evidence as to whether or not the Agreement is in South Africa’s favour overall2. Furthermore, given the huge imbalance between the South African and EU economies, any negative effects will be far more keenly felt by ourselves. COSATU is also concerned about the extent of South Africa’s capacity, particularly in the short and medium terms, to take up the export opportunities which are opened up through the Agreement. It is thus imperative that, in the implementation of the Agreement, risks and negative effects are minimised and their consequences buffered, while growth opportunities are maximised.
Given the crisis of job losses which South Africa is currently experiencing, any current or proposed policies need to be evaluated in the context of their impact on employment. While it would be simplistic to reduce this to the only benchmark for evaluating policy, COSATU asserts that job creation and the prevention of job losses needs to be the primary criterion informing policy.
COSATU has consistently raised concerns about the approach to tariff liberalisation and export orientation as set out in the Growth, Employment and Redistribution (GEAR) macro-economic strategy. Our concerns around these policy measures include job losses arising from the eroding of domestic industry, a promotion of capital intensive rather than labour intensive industries, and a lack of focus on growing the domestic market. In previous forums, including in our submission on Industrial Policy to the Industrial Policy Group of the Trade and Industry Portfolio Committee last year, COSATU has voiced concern about the rapid pace of tariff liberalisation, faster than South Africa’s WTO commitments. The Agreement under discussion today will obviously have the effect of further lowering our tariffs to our major trading partner3. For this reason we would like to take this opportunity to raise broader questions about the relationships between tariff liberalisation, export orientation, and employment.
COSATU does not see any necessary correlation between tariff reduction, employment creation, and increased efficiency of industries or greater exports from South Africa. The fact that there has been a decline in employment levels at the same time as significant increases in output and export growth (briefly outlined in the previous section) is most telling. This pattern flies in the face of the prevailing logic of the GEAR strategy which is that increased competitiveness will lead to increased exports, which in turn will lead to expanded production for the expanded market, which in turn will lead to increased job creation.
A key problem with this approach is that scarce resources are mobilised into competitive, export-oriented, usually capital intensive, industries, while the resourcing of more labour-intensive forms of beneficiation and industrial activity is neglected.
Furthermore, the assumption that increased competition from cheaper imports will lead to greater efficiency in domestic production is flawed. COSATU does acknowledge that there is currently considerable inefficiency in South African industry, particularly at the level of managerial inefficiency, and that considerable restructuring is required. The catalyst for such restructuring should not, however, be opening up to unregulated competition – which may well have the effect of shutting down South African companies rather than making them more productive. Restructuring should rather be guided by pro-active industrial policy initiatives, such as those which share information about international best practice in particular production lines4. Rather than simply presuming that industry will develop if it is exposed to the ‘cold winds of competition’, an approach is needed which nurtures domestic industry through selective use of protective measures, as well as deliberate industrial strategies aimed to build up domestic capacity. This could have a number of facets such as:
- Import substitution
- Active tariff policy
- Increased investment in research and development, co-ordinated with research institutions
- Industrial and agricultural support targeting including promotion of beneficiation and high growth clusters
Tariff policy can be a key component of an overall industrial strategy, providing tools through which government can actively guide the economy, prioritising and cultivating certain industrial sectors. Tariff liberalisation – particularly where such liberalisation is not South Africa’s own initiative but is in response either to WTO rules or to a bi / multi-lateral negotiations process - inhibits the capacity of government to do this.
International experiences of industrialisation, whether of the developed countries at earlier stages or more recently of East Asian countries, shows a consistent pattern of protection of domestic industries during development with tariff liberalisation only coming later, if at all. Even where there has been a strong emphasis on export promotion, this has been complemented by strong barriers against imports.
Instead of focussing exclusively on export orientation, a component of industrial policy should be to encourage import-substitution in order to assist in expanding the domestic traded goods sector. Expansion through import-substitution operates through reducing the propensity to import, reducing leakages from the domestic economy. Specific strategic sectors must be targeted for a concerted programme of import substitution. The chief criterion in selecting these sectors must be their ability to generate sustainable employment.
An appropriate balance between an export thrust and import substitution has important employment effects. Import substitution provides greater potential for the adoption of labour intensive techniques and employment generation than do export oriented industries which in order to be internationally competitive tend to focus on cost cutting through the adoption of the most efficient production technique.
In COSATU’s view existing tariff policy should be modified along the following lines:
South Africa’s general tariffs should not be reduced at a rate faster than that required by our obligations to the World Trade Organisation;
Tariff reduction should be preceded and concurrently supported by active industrial policies to promote competitiveness;
Concrete social adjustment programmes to transfer workers into new jobs must be introduced if tariff reduction leads to retrenchments;
Government should use tariffs strategically, reducing them to improve competitiveness, but also increasing them to protect jobs and promote industrial development;
Review of tariff reductions which are having negative effects and not reaching the desired objectives.
Government has argued that job loss in manufacturing is as a result of SA's structural adjustment to global trends in manufacturing and is not due to poor sequencing of tariff reductions and supply-side measures. However concrete experience at sectoral level is not only that jobs have been lost and jeopardised concurrently with tariff reductions, but that tariff reductions have arguably slowed down the rate of new job creation.
COSATU appreciates that it was able to participate within the negotiation process to the extent that it did. We participated at two levels :
via the NEDLAC Trade and Industry Chamber's Technical Sectoral Liaison Committee (TESELICO). TESELICO provided a general cross-industry/sector consultative forum for government trade negotiators to liaise with business and labour over technical matters relating to the Agreement5
in ad hoc sectoral consultations (outside of NEDLAC) that took place from time to time.
These processes were inadequate for COSATU to input substantively and continuously into the negotiations process. At many stages insufficient information was available. An additional source of frustration to labour was that at some points during the negotiation government engaged in bilateral sectoral meetings with employers but did not extend this arrangement to include labour.
It would also have been desirable for the relevant parliamentary Portfolio and Select Committees to have had more consistent and meaningful opportunities for shaping the Agreement. The fact that so few stakeholders are making submissions today, despite the huge effects the Agreement will have, is an indication of the disempowerment of broader society in this process. Although the Agreement has been in the pipeline for some time, the haste to have it implemented on 1 January seems to have led to an inappropriate compression of events in these final stages.
COSATU tables the following proposals around future processes:
Labour would wish to continue to be involved in the discussions relating to some of the outstanding elements of the Agreement. In this regard specific mention is made of those sections of the Agreement relating to public sector procurement (article 44); fisheries (article 61); services (article 29)
Given the complexity of the issues involved in the negotiations government should make specific resources (especially research) available to the labour constituency to enable it to be properly involved in the future negotiation processes. The IDC played a significant role in assisting labour during the EU-RSA Agreement - perhaps this arrangement needs to be formalised and enhanced. Labour appreciates that government shared resources but there could have been greater sharing; government research could have been shared more quickly.
Consideration should be given to including labour representatives as part of the SA delegation during the negotiation of any trade Agreement. Sufficient flexibility should be allowed that labour is able to articulate our own mandates positions to government, in a way that does not undermine the coherence of the South African negotiating position. This will facilitate report backs to the labour movement in general, and allow the government to be fully aware of a labour informed position in the cut-and-thrust of negotiations. Labour asked to be present during the EU negotiations but this was not acceded to.
The first lesson relates to the basic motive for SA to consider a PTA [Preferential Trade Agreement] with the EU. Whether it is an essentially political decision or an economic one would have major implications. If it is mainly an economically motivated decision, then serious preliminary studies are need to assess the overall desirability and impact on SA .
Mustapha Nabli6
Any adjustment to a nation's tariff regime can have enormous (positive and/or negative) impacts upon all aspects of the economy of that country. It was therefore somewhat surprising that the DTI entered into negotiations with the EU without sufficient prior thorough checks on what the probable effects of any potential trade deal would be on the RSA economy. That the negotiations were finalised without an overall quantitative and qualitative impact assessment having been concluded is very disturbing. Labour is especially concerned about the possible impact the Agreement may have upon jobs.
While it is recognised that government (prior to and during the course of the negotiations) did consult with business and labour to obtain their views on possible tariff adjustments these consultations should not have been seen as a substitute for a rigorous qualitative and especially quantitative analysis of its own7. During the course of the negotiations a number of academic econometric impact studies were completed independently of government (see Appendix 1 for highlights of the key conclusions of these studies). None of these showed that a probable Agreement would be overwhelmingly in favour of the RSA. Indeed one study completed by UNCTAD showed that the Agreement was not in the South Africa's interest.
COSATU tables the following proposals:
Parliament should require as a condition of ratification that the DTI (together with other affected government departments, e.g. Land Affairs and Agriculture) should urgently produce two studies, namely:
one macro qualitative and quantitative study that would attempt to assess the likely impact of the whole of the Agreement upon the RSA (including the issue of the capacity of domestic industry to take up the export opportunities provided for);
a series of other studies which would examine the impact of the Agreement upon specified economic sectors and geographic regions of the country.
Both studies should have as a focus the likely employment effects of the Agreement. These studies will be much easier to conclusively finalise now that there is certainty about what the Agreement entails.
The results of these studies should then be used to deal with the negative effects of the Agreement while taking advantage of positive opportunities. Specific proposals in this regard are tabled in section seven of this submission.
Such studies could also be used to establish base lines against which regular future studies on the impact of the Agreement could be measured. COSATU proposes that bi-annual overall studies should be commissioned on the impact of the Agreement; while annual surveys should be produced on those identified sensitive sectors.
In the event that additional European countries join (or look like joining) the EU then COSATU proposes that further impact studies should be produced on what the likely impacts of these countries' accession would be on the RSA economy. We are concerned about the entry of low wage countries to the EU (e.g. Turkey, Poland, Hungry, Czech Republic, etc) , and the negative impact this could have upon South African industry.
Parliament should require that, as a condition of ratification for other future trade Agreements, the government should provide prior impact studies on the likely effects of such agreements upon the South African economy.
All the research endeavors proposed above should be produced with the active participation of representatives from the labour movement; and there should be regular reporting on the results obtained to Parliament.
Although the Agreement is to a certain extent asymmetrical and differential in South Africa’s favour8, South Africa will still be faced with increased competition from imports and increased opportunities to export over roughly the same time period. The immediate adjustment costs will be relatively far greater for South Africa, given that the European trade regime is already far more liberalised. South African industries liberalising from a more protected starting point could feel the change more keenly than EU industries.
COSATU is concerned that the asymmetrical and differentiated nature of the Agreement will be eroded by the EU’s superior capacity to take up increased production as well as to defend their own markets. While South African tariff reductions will open up the space for increased EU imports almost immediately, uptake of enhanced export opportunities may be delayed. This could potentially lead to a worsening of the trade balance, with limited foreign exchange reserves being used to pay for imports while relatively little foreign exchange reserves are being earned. This scenario could be perceived as placing "upward pressure" on interest rates, which would have further negative consequences for domestic investment and job creation.
As discussed in section 3 above, COSATU is concerned about tariff liberalisation exacerbating the jobs crisis engulfing South Africa. We are not convinced that jobs generated from increased exports to the EU will outweigh job losses from increased imports, although we do indeed hope that this will be the case. The employment effects will also be affected by the relative labour intensity of exporting and import competing industries. Contrary to what economic theory predicts, given South Africa’s labour-intensive factor endowment, our exports currently tend to be relatively capital-intensive while many of our imports tend to be relatively labour-intensive. A difficult challenge for us as a country is to reconcile the imperatives of increasing exports, moving our production up the value-added chain, and promoting labour intensive production. Government policies need to assist in meeting this challenge.
Proposals for managing any negative employment effects are discussed in section 7.1 of this submission.
The subsidy system of the EU, particularly of agriculture, is an ongoing concern. The massive public sector aid (40000000 ECU per annum) provided to its farmers, agricultural processing industries and food product traders creates major competitive distortions –for exporters to the EU market, competitors with EU exports in domestic markets, and for exporters competing with EU exports in third markets. This situation obviously does not emanate from the Agreement under discussion, but more broadly from the system of international trade regulation and the condoning of such practices by developed country regions in the Marrakech round. This is a crucial factor in determining the impact of the agricultural aspect of the deal.
We echo the concern expressed in the comments on the Agreement from these committees, that the Agreement has only partially addressed problems created for South African agricultural exporters created by the protectionism and unfair trading practices associated with the EU’s Common Agricultural Policy (CAP). These subsidies present a major obstacle to South African access to third markets, and the employment opportunities which could arise from this access, and pose the danger that dumping of produce by European farmers at prices lower than our local producers can match. This is in the context of the concurrent removal of subsidies to South African producers.
In terms of the South African market, even though some tariff barriers have been retained the EU system of export refunds allow EU exports to "jump" these barriers. COSATU hopes that ways will be found of dealing with the EU subsidy system, possibly on a multilateral basis. We support the call from these committees for a major breakthrough in such issues in the WTO’s Millennium Round of negotiations due to begin in Seattle in December.
Labour is wary that the RSA may have scored pyrrhic gains in the negotiations with the EU. The EU may have agreed to reduce its tariffs to zero (or near zero) for a whole range of RSA products in the full knowledge that many South African products would be unable enter the EU (or find it exceedingly difficult to do so). This is because the EU has put in place a number of barriers or disincentives such as :
- bureaucratic customs and administrative entry procedures
- technical barriers to trade
- charges relating to imports
- government aid, including subsidies.
Prior to the commencement of negotiations with the EU, labour's representatives in NEDLAC argued that it was important for government to undertake research that would identify those non-tariff barriers the EU had in place. This did not occur. It was only during the course of the negotiations that some work was done on Non-Tariff Barriers9. It is COSATU’s view that this research should have been finalised even prior to the commencement of negotiations.
COSATU tables the following proposals:
The DTI (together with other government departments) should be required - when they publicise the benefits of the Agreement - to encourage all business to immediately advise it of any EU originated entry "impediments". The DTI should specify a person or structure within the DTI to whom business can report its problems; this person/structure should ensure that a speedy investigation is launched into the merits of the complaint; and that proposals are made to address the issue.
The DTI should report to parliament on an annual basis on all those non-tariff barriers that the EU has used in order to block South African products, and what measures it took to counteract these.
South Africa should speed up its own research into standards, quality, metrology, etc. This research will be vital in identifying those areas whereby RSA will have to improve its own standards, quality arrangements, etc. Thereafter proposals should be made in order to see if the South African companies on their own can make the necessary adjustments. Should they be unable to do so then the government should examine ways offering these companies targeted support so that they can adapt.
It is disappointing to note that the social clause (see Article 85 of the Agreement entitled "Social Issues") contained within the Agreement does not contain any teeth - especially in relation to core ILO conventions10. Labour had proposed during the negotiations to the DTI that there should be a direct linkage between any country within the EU obtaining trade preferences and that country formally ratifying the requisite ILO conventions. What was adopted, particularly as it relates to labour standards, is in our view substantially weaker than what could have been achieved in discussions with the EU.
Although the Agreement is nominally between South Africa and the EU, in effect it involves the whole of SACU as well as having implications for the Southern African region as a whole. By concluding a deal with South Africa, the EU has unilaterally transformed the basis of its trade relations with the BLNS countries (Botswana, Lesotho, Namibia and Swaziland) from a non-reciprocal preferential trade agreement to a reciprocal preferential trade agreement. COSATU is concerned about the potential effects of the Agreement on SACU countries. These countries will be negatively affected both in terms of possible displacement of their own domestic industries by cheaper European imports and by losses in revenue from the SACU customs duties revenue pool, as well as to a lesser extent by loss of exports to South Africa.
It would be irresponsible for South Africa not to take steps in ensuring that these potential consequences are mitigated. There have been some indications of EU support to the region, and South Africa in conjunction with the affected countries needs to ensure that these commitments translate into meaningful injections of resources. Monitoring is also required to ensure that any aid/compensation offered does not simply come out of what these countries would have received anyway. Lastly, in finalising and implementing the SADC Protocol South Africa needs to be sensitive to the negative effects the region and SACU in particular are likely to be experiencing as a result of the EU Agreement.
The Agreement will obviously lead to both winners and losers in the South African economy. It would be simplistic to think that workers who lose their jobs in an industry negatively affected by the Agreement would simply be able to gain alternative employment in another industry benefiting from growth opportunities emanating from the Agreement. This would be constrained by, amongst other things, the limited mobility of factors of production. An important redistributional role thus arises for government in ensuring that the "losers" from the Agreement, particularly those workers with limited alternative options, are supported. Specific proposals for this are set out below. We also support the recommendation in the committees’ comments on the Agreement for the production of a "user friendly" document illustrating in an accessible manner how broad industry categories or product lines will be affected.
7.1 Dealing with negative effects
With the operationalisation of the Agreement it is clear that there could be many firms / sectors / regions / portions of the labour market (e.g. women) in the economy that could experience severe difficulties in adjusting to the increased penetration of the RSA market by EU products. Should this happen substantial number of workers could lose their jobs. It would be patently unfair that workers should have to take the brunt of the effects of the Agreement. COSATU proposes that government immediately identifies those sectors of the economy that would be particularly vulnerable to the effects of the Agreement. This would enable strategies to be implemented to these vulnerable sectors to adapt, or soften the impact.
COSATU tables four key proposals in this regard:
7.1.1 Support for industrial restructuring
Sectoral restructuring funds can be instituted, to be jointly managed by government, business, and labour, to fund supply side measures for negatively affected sectors. Furthermore, government should adjust the existing government supply side / industrial support incentive programmes in order that affected firms or sectors can withstand some of the shocks that the Agreement may present. In some instances it may be necessary for government to introduce entirely new support measures. The type of initiatives which could be supported both by sectoral restructuring funds and by independent government initiatives could include investment incentives, technical assistance with restructuring, accelerated research and development, support in overcoming the EU’s non-tariff barriers, and skills training for workers in the sectors.
7.1.2 Support for workers affected
COSATU proposes that as soon as this Agreement comes into effect a programme should be immediately implemented to assist all those workers who are dislocated as a result11. Consultative studies would be required to attempt to identify and quantify job losses which come about as a (direct or indirect) result of the Agreement. The support measures proposed by COSATU will require the establishment of additional support measures over and above those existing resources that emanate from the Unemployment Insurance Fund; the Social Plan; and training programmes. COSATU has tabled proposals in this regard in other forums. Furthermore, there should be appropriate retraining and re-skilling of affected workers to maximise their chances of finding alternative employment.
7.1.3 Use of safeguard mechanisms
Specific attention is drawn to Articles 23 and 24 of the Agreement relating to "Safeguards" and "Transitional Safeguard Measures". Generally these clauses will allow the RSA to clampdown on EU originating products should they be imported in quantities and under conditions as to cause or threaten to cause serious injury to domestic producers, and in certain instances to "infant industries" and/or entire "sectors" whereby "difficulties will produce major social problems". It is important that the government fully publicises the available safeguard mechanisms, and takes overall responsibility for monitoring the opportunities for bringing them into effect.
The overall Review mechanism should be real, open, and accessible.
7.1.4 Agricultural sector
Specifically in terms of the agricultural sector, COSATU proposes the establishment of a trade monitoring system in areas vulnerable to CAP distortions, with particular sensitive product groups being "red flagged" with South African customs authorities so that priority is accorded to monitoring trade flows (and changes in EU export refund levels) in these groups.
7.2 Taking advantage of opportunities
On the assumption that this Agreement may offer significant economic opportunities for the RSA, the question is posed as to how the RSA will be able to maximise these potential opportunities. While the business sector will play a major part in the maximisation of these opportunities labour is of the view that government must play a lead role in this initiative.
COSATU tables the following specific proposals :
The DTI (in conjunction with other affected government departments e.g. agriculture; forestry; sea fisheries) should be requested to design and deliver a comprehensive educational / information programme regarding the opportunities that this Agreement will offer the South African economy. We acknowledge the fact that the DTI has already begun alerting potential exporters as to upcoming opportunities, but believe that this needs to be done more comprehensively. The general and sector specific programmes should concentrate on how the RSA can :
- encourage the promotion of its exports;
- attract new investment that will be able to take advantage of the new trade preferences;
- focus on opportunities for Small, Medium and Micro Enterprises (SMME’s);
The programme should not only look at the advantages that could accrue to the RSA as a result of tariff changes, but also some of the advantages that may be gained because of the opportunities that have been created under the "Economic Co-operation", "Development Co-operation", and "Co-operation in other Areas" aspects of the main Agreement (see titles IV, V and VI).
COSATU would propose that the programmes should not only be drawn up by those people charged with the specific responsibilities for export promotion and investment, but that it should also involve those people who were active in the negotiation of the Agreement itself. (It will be these people that will know why the RSA made concessions in some areas in order to "gain" concessions in others.) Should it be necessary the government should provide additional financial resources to sectors so that they can do thorough research on what new opportunities have been created12.
All these programmes should be finalised prior to the coming into force of the Agreement.
Acronyms
| Agreement | European Union - Republic of South Africa Agreement on Trade, Development and Co-operation |
| BLNS | Botswana, Lesotho, Namibia and Swaziland |
| CAP | Common Agricultural Policy |
| DTI | Department of Trade & Industry |
| EU | European Union |
| ILO | International Labour Organisation |
| NAAgreement | North American Free Trade Agreement |
| NEDLAC | National Economic Development and Labour Council |
| NTB | Non-Tariff Barrier |
| PTA | Preferential Trade Agreement |
| RSA | Republic of South Africa |
| SACU | Southern African Customs Union |
| SADC | Southern African Development Community |
| SMME’s | Small, Medium, Micro Enterprises |
| TESELICO | Technical Sectoral Liaison Committee (a NEDLAC sub-committee) |
| WTO | World Trade Organisation |
Appendix 1: Impact Studies
The following studies have been finalised. The quotations from the report try to summarise some of the main findings
- "Economic Assessment of the proposed Free Trade Area between the European Union and South Africa" Institute for development Studies, Bureau European de Recherches, Data Research Africa, Trade Policy Monitoring Project, University of Sussex : undated.
Findings:
This extensive research project was commissioned by the EU Commission in order that it could assess the impact of the Agreement on the European economy.
With regards the non-agricultural impact of any potential Agreement the draft report noted:
"When the Agreement is fully implemented, the relative improvement in market position will be greater for EU exporters than for South Africans, since the overall initial level of protection in South Africa is much higher. Against this, the asymmetrical transition period may mean that in the early years this relative position is reversed. [ Draft Vol 1 Chapter 2 "Summary of Findings"]
With regards the agricultural impact of any potential Agreement the draft report noted :
Given the overall supply situation in the EU and the volumes currently trade by South Africa, it is not likely that improved access would create any significant problems for the European Industry" [ Draft Vol 1 Chapter 2 "Summary of Findings"]
With regards a general assessment of the impact of a potential Agreement on the EU economy the draft report noted :
"Trade with South Africa is small in relation to EU activity. This is the case even in those sectors where it is most significant. Hence, rapid growth of trade has small impacts, positive and negative, on the EU economy.
"Trade liberalisation is likely to produce effects which are smaller than the exogenous increases in trade which we have used in our base scenarios. In consequence, the impacts of trade liberalisation, per se, are very small indeed.
"Even the attempt to model only the negative effects of trade growth produces small impact. The model gives no grounds for believing that liberalisation of EU-South African trade in manufacturing would cause serious adjustment strains in the EU economy." [ Draft Vol 1 Chapter 3 "Overall Assessment: Conclusions"]
- "Impact of the Free Trade Area between South Africa and the European Union - Results of the SMART Simulation" L Jachia (UNCTAD), E Teljeur (TIPS) : May 1998.
Findings :
"the impact of the proposed free trade area Agreement on bilateral trade flows is likely to be uneven, with a relatively large effect on SA's imports from the EU and a comparatively small effect on its exports towards this market" (p2)
"it is very clear from the above analysis that from a purely mercantilist point of view South Africa stands to lose from the Agreement" (p 32)
- "Resource Allocation Effects of the European Union-South Africa Free Trade Agreements : A General Equilibrium Analysis Using GTAP", Rob Davies (University of Zimbabwe) : September 1998.
Findings :
"There is a danger of negative trade diverting effects swamping any positive trade creating ones for South Africa in a SEAgreement [SA-EU Agreement]" (p10.
- "After the negotiations : Assessing the Impact of Free Trade Agreements in Southern Africa" JD Lewis (World bank), S Robinson (International Food Policy Research Institute), K Thierfelder (US Naval Academy) : September 1999.
Findings :
"We find that an Agreement between the EU and South Africa has a much bigger impact on South Africa than on the EU." (p17)
