SAR, Vol 12 No 3, June 1997
RALLYING THE REGION:
SA/EU NEGOTIATIONS CONTINUE
BY DOT KEET AND THE SAR EDITORIAL WORKING GROUP
Dot Keet is a senior research fellow at the Centre for Southern African Studies, the School of Government, University of the Western Cape.
If there is consensus on anything in the contentious post-apartheid economic policy debates, it is that international trade will play a critical role. Two visions of trade and economic development have competed for predominance since the 1994 elections. The ANC's pre-election economic platform, the Reconstruction and Development Programme (RDP), advocated domestic industrial restructuring and stronger internal and regional economic links as the central task for economic development, with international trade following, and supporting, this internal transformation. The RDP called on South Africa to "integrate into the world economy in a manner that sustains a viable and efficient domestic manufacturing capacity and increases our potential to export manufactured goods," and "develop a prosperous and balanced regional economy in Southern Africa based on the principles of equity and mutual benefit." Yet this vision, which subordinated trade strategies to broader development goals, came up against globally dominant neo-liberal ideas about trade and economic development policies, ideas that prescribed rapid integration into global markets on the assumption that international competition would drive successful domestic restructuring.
In practice, global integration invariably takes place on terms to the distinct disadvantage of weaker trading partners, destroying, rather than strengthening, much of their domestic manufacturing capacity. An article on South African trade negotiations with the European Union (see "Cap in Hand? South Africa & the European Union," SAR, 12, 1 [November, 1996]), exposed the extent to which the "free" trade deal on offer from the EU threatens to incorporate South Africa into the global market-place on terms and at a rate very different to what had previously been contemplated - with the attendant danger that many South African producers, forced to face competition from powerful European agricultural and industrial producers/exporters, would find it extremely difficult to carry through the necessary economic (and social and political) reconstruction and transformation.
The other dangerous dimension of the proposed SA-EU free trade relations relate to their implications for South Africa's fellow members of the southern African development community. The way the proposal was initially presented to SA by the EU ignored both the implications of such an FTA for these countries and their right to have a voice in the process. Furthermore the agreement, as conceived by the EU, seemed to threaten the very possibility of a viable regional integration and development project which the EU formally supports.
At the time of the first SAR article on this subject, the South African government had not yet formulated a response to the EU free trade proposal, and there were concerns that the government might not effectively resist the agreement, with all of its negative implications for the South African agricultural and manufacturing sectors, and for South Africa's regional economic partners. The FTA proposal found support amongst the "old guard" denizens of the South African state apparatus, with their Eurocentric orientation towards South Africa's "traditional trade partners" and their neo-liberal convictions about the proper integration of SA in the global economy. However, the FTA also appeared to have found a certain acceptance even among some newly appointed government officials. Indeed, neo-liberal ideas about economic development strategies have gained rapid purchase in South Africa. The extensive liberalization of trade since 1994 has preceded rather than been a strategically wielded instrument of the extensive, managed domestic industrial restructuring advocated in the RDP and by the trade union federation COSATU.
The proposal from the European Union for a free trade agreement with South Africa did lay bare the implications of the neo-liberal economic development model for both domestic manufacturing and regional development rather starkly and it has contributed towards the growing debates on the implications of neo-liberal policies being imposed and adopted in South and southern Africa. In the event, the year following the EU proposal has seen various initiatives by South Africans, often taken in conjunction with their counterparts elsewhere in the region, to subject the EU proposals to some critical analysis. These are gradually contributing towards the strengthening of regional alliances and the development of alternative perspectives. And they can in turn strengthen commitment to strategic regional integration rather than simplistic programmes of global integration, possibly providing an important re-enforcement of the South African government's formal commitment to the development of southern African regional economy. Thus, in response to Europe's "divide and conquer" strategy for the region, South African negotiators, in January this year finally produced their opening negotiating position, one based on a regionally-focused trade and development agreement between southern - and not just South - Africa and the EU.
The extent to which SA officials are willing to pursue these proposals in their negotiations with the EU will serve as a major test of where SA stands vis-à-vis the region, but also of the extent to which they are willing or not to acquiesce in the dominant role for global "free" trade in the restructuring of the South African economy. So far, as stated, some signs are promising: the goal of the TDA is expressed as the need to "promote equitable and mutually beneficial cooperation and integration in the Southern African region," SA's negotiating document declared. This was an aim, according to the document, to which "both South Africa and Europe have repeatedly declared their commitment"!
In addition, South African negotiators argued that if South Africa was to consolidate its new democracy, undo the effects of apartheid and play a developmental role in southern Africa, then the EU must recognize and respect SA's own economic and political vulnerabilities. South Africa called upon the EU for development assistance, investment and other measures to promote economic restructuring and development, rather than a reciprocal free trade agreement more appropriate for two countries or regions with equivalent levels of economic development.
In carefully phrased terms, SA urged the EU not to miss an "historic opportunity" to play a central role in the reconstruction of South and southern Africa. They called on Europeans to play a different role than that proposed by their trade negotiators and, instead, to be active investors - and potential beneficiaries - in the transformation and development of South Africa and the region.
South African negotiators identified four changes to the EU proposals that would be critical to recasting negotiations to support a developmental and regional framework. These proposed changes also served to highlight the extent to which the EU had been offering South Africa an agreement that was distinctly to Europe's advantage.
First, the negotiators argued that the proposed FTA would merely exacerbate SA's growing and unsustainable trade deficit to the EU, and intensify the distorted trade pattern that finds SA exporting predominantly primary goods to the EU while heavily importing European industrial goods. The negotiators' proposition in this regard is that the agreement must address these historic imbalances in South Africa's trade with Europe, not entrench them.
The second, related change was to end the EU's discrimination against South African agricultural exports. Almost 40% were excluded from tariff-free entry into the EU under the proposed free trade agreement, North African and other Mediterranean producers received preferential trade access for similar products. For an FTA between SA and the EU to be "reciprocal," there would have to be fewer risks and more benefits for South Africa. The South African position is that there has to be greater asymmetry rather than simple reciprocity between the respective parties.
Third, negotiators argued against making acceptance of the FTA a pre-condition for South Africa's access to the important non-trade terms of the Lome Convention (the EU's preferential trade agreement with African, Caribbean and Pacific ex-colonies). Access to the "non-trade terms" of Lome could provide SA with the right to tender for EU-funded development projects, allow SA to participate in the joint inter-governmental bodies of the Lome countries, and allow goods produced in a Lome member country with South African inputs to have preferential access to EU markets under the Lome "regional cumulation" terms - which could be an important encouragement to southern African joint manufacturing ventures. The EU has already agreed to such Lome access for SA in principle, and these kinds of provisions are important to South Africa and critical to its cooperation with its SADC partners [editor's note - this condition has since been agreed by the EU].
The fourth demand was that the EU withdraw its proposals on changes in SA government procurement procedures, intellectual property rights policies, competition policies and other issues from the bilateral negotiations. All these issues are contentious, and are already being dealt with in multilateral fora, SA negotiators argued.
A regional strategy
Both domestic debates and consultations with regional partners played a role in developing the TDA. The Parliamentary Committee on Trade and Industry was particularly active, bringing together other parliamentary committees, soliciting submissions from agricultural, industrial, labour and other bodies, and consulting with other SADC parliamentarians. The government also consulted with the tripartite National Economic Development and Labour Council (NEDLAC), drawing on analyses and proposals from independent research institutes. Trade analysts noted the rapid expansion of South Africa's trade with Africa and the high proportion of manufactures in SA's exports to the African continent compared to the export of mainly primary commodities to Europe. The position which emerged from these domestic consultations was that regional integration had much to offer South Africa, while the implications of aspects of the EU bilateral trade proposal provided much cause for concern.
Other countries in the region have seen South Africa as a potentially powerful ally, but also potentially a devastating adversary should competition prevail over cooperative regional development. In the event, the process of clarifying and deepening regional trade arrangements - while important in strengthening SA's negotiating position with the EU - also bear the promise of protecting the other states in the region which otherwise might be harmed by the SA-EU trade agreement and also of committing SA more firmly to the goal of regional development.
Hence the importance of the discussions between the South African government and their counterparts in the Southern African Customs Union (SACU) countries (Botswana, Lesotho, Namibia, Swaziland - BLNS). First, the five countries had to get the EU to accept SACU as "real" customs union. With active support from the South African government, the BLNS countries also demanded time and funding from the EU to undertake their own impact assessments of the FTA, as the EU had done with its own members. As a result, SACU members were in a much stronger position to argue that any proposed SA-EU trade negotiations affecting SACU must be coordinated with the current renegotiation of the SACU agreement to support and not threaten that agreement.
Moreover, with SA-EU free trade talks imminent, the SADC countries (the SACU countries, plus Mozambique, Zimbabwe, Tanzania, Zambia, Mauritius) were moved to accelerate their long-standing trade negotiations. In August 1996, they signed an historic trade protocol that will turn SADC into a free trade region during the next ten years. This free trade region will be created gradually through variable and evolving preferential tariff arrangements between the member countries, but with SA granting more favourable access to its markets than it will require of other SADC members. The protocol also recognizes the central importance of programmes to upgrade and coordinate the region's customs systems, improve other infrastructures, and encourage cross-border investment and industrial development.
Negotiating the SADC trade protocol was an enormous first step in consolidating an integrated economy in southern Africa. But it will also strengthen southern African states in their efforts to counter the EU's divisive and self serving trade strategies. Registering SADC as a new trade group with the World Trade Organization (WTO) secured a limited but exploitable legal space for SA to justify and defend preferential treatment for regional trading partners. South Africa is now in a stronger position to argue that EU-SA economic relations cannot take precedence over the finalization and effective implementation of this prior SADC trade agreement. Presenting SADC as an internationally recognized economic community also could be used to pressurize the EU to make practical its frequently declared support for integration and development in southern Africa.
If the regionally-based, pro-active TDA suggested in these regional trade agreements and in SA's opening negotiating position with the EU is to become a reality, the detailed tariff terms and broader dimensions of the SADC trade agreement must be concretized and implemented as rapidly as possible. South Africa must resist agreeing specific new trade terms with Europe until there is greater clarity on both the detailed terms of the SADC trade protocol and its likely effects upon SA and its SADC partners. Unless the SADC trade protocol is concretized, the regional Trade and Development proposal may be undermined, even as SA negotiators attempt to put forward a TDA as their counter to the EU's free trade strategy.
South Africa's negotiations with the EU will undoubtedly be a complex and drawn-out process, but particularly so if the South African side really is determined to alter the terms of the debate. The arguments of the SA negotiators must be convincing at the negotiating table, but also bring onside broader public support in South Africa, southern Africa, and Europe. In the interim, SA should be prepared to resist the current reciprocal free trade terms with the EU, and stand firm instead on non-reciprocal trade access to the EU under Europe's Generalized System of Preferences (GSP). These terms provide nearly the same market access that the EU is offering under its FTA proposals - over the long term - but with the advantage that GSP terms are quite immediate and do not have to be reciprocated. In fact, South Africa should argue for the same trade rights as comparable countries which now enjoy more generous terms, even if these, too, have a limited future in EU plans.
Commitment in question
All is not clear sailing, however. There remain serious questions as to whether the TDA will be fully accepted by the EU; and, unfortunately, there is even some doubt about the level of commitment to it by South Africa's own leaders! For its part, the EU has broader strategic interests at stake in its negotiations with SA, not least the re-negotiation of the Lome convention, and there are signs that the EU would prefer to move in the direction of bilateral free trade agreements, such as that proposed with SA, for all but the poorest ACP countries, rather than the broader preferential Trade and Development Relations now in place. Therefore EU leaders will not easily be persuaded to accept the type of equitable development measures of South Africa's TDA approach, for fear of the precedent they might set. As Europe attempts to re-position itself in the increasingly competitive global environment, EU global strategists seem set to challenge precisely the kind of development approaches SA has proposed. Indeed, there are already signs that the skilful European negotiators will recast the language of SA's proposals: in order, precisely, to channel the negotiations back towards reciprocal trade liberalization.
Thus, from the beginning, EU officials have pushed the SA government towards a rapid acceptance of the FTA, presumably to forestall extensive and broadly based regional discussions on the implications of the bilateral agreement for the region. EU officials are uncomfortably aware that in the period since they submitted their original mandate, regional alliances have been building. Undoubtedly, the EU will attempt to use their influence on the more vulnerable governments in southern Africa to press them to settle for less than what a proactive, joint strategy might be expected to deliver. And the more cautious elements, old and new, in the South African government will be subject to similar pressures, pressures that attempt to reinforce an unquestioning acceptance of rapid and extensive liberalization.
The more conservative forces - old and new - in South Africa must be expected to continue to argue that SA should not "antagonize" the EU by refusing to accommodate its free trade proposals. If this cautious, self-defeating approach regains predominance, the SA government may well backslide into some slightly improved proposal for bilateral free trade with Europe, with all the negative implications for South African reconstruction and regional cooperation and development that this entails. Non-governmental organizations, labour, community, church and related forces in South Africa, southern Africa, and Europe itself can exert counter-pressures by playing an informed and active role, pushing for agreements which support economic restructuring and social transformation, rather than simply global integration on highly disadvantageous terms.
! NEWS FLASH !
SOUTH AFRICA AND EUROPEAN UNION DIFFER ON TRADE CONCESSIONS
South Africa has criticised calls by the European Union that Pretoria should extend the same trade concessions to the 15-nations trading bloc as it would offer its Southern African neighbours. Pretoria says such proposals fly in the face of efforts to liberalise regional trade. The European Commission believes South Africa should offer the European Union the same trade concessions as it would offer neighbours in the Southern African Development Community (SADC). European commissioner in charge of relations with South Africa, Joao de Deus Pinheiro, believes the principle of granting the European Union and SADC the same preferences will see the EU-SA trade talks acting as a "crowbar for opening South Africa to the SADC." South Africa, however, is worried that preferences for the EU would displace SADC products in the South African market and, therefore, undermine the SADC trade protocol. It was stated that SADC countries would find it difficult to compete with EU imports in South Africa. Granting the same benefits to the EU was also contrary to South Africa's calls that the proposed free trade area should take into account the different stages of economic development in South Africa and the European Union.
! NEWS FLASH !
SOUTH AFRICA PROPOSES FUND FOR FREE TRADE DEAL FALLOUT
South Africa has proposed that a fund be set up to compensate workers in the Southern African Development Community (SADC) who have lost their jobs as a result of a free trade agreement with the European Union (EU), as well as to provide investment where businesses have been closed.
However, the confrontation between Trade and Industry Minister Alec Erwin and the EU over agricultural exclusions to the accord could delay talks on compensation. South Africa envisaged a fund to assist in the retraining of workers who lost their jobs and to provide investment for new industries where old ones were driven out of business.
EU sources have said that discussions on development funding will be pursued once the South African position has been tabled. The next set of technical discussion is set for next week in Brussels.
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