WTO Multilateral Trade Negotiations; Southern African Customs Union: briefing

Meeting report

ECONOMIC AFFAIRS SELECT COMMITTEE
9 November 2004
WTO MULTILATERAL TRADE NEGOTIATIONS; SOUTHERN AFRICAN CUSTOMS UNION: BRIEFING

Acting Chairperson: Mr D Mkono (ANC, Eastern Cape)

Documents handed out
Update on WTO Multilateral Trade Negotiations - "The July Package"
PowerPoint presentation on Multilateral Trade Negotiations update
PowerPoint presentation on Southern African Customs Union

SUMMARY
The Department of Trade and Industry briefed the Committee on the July Package negotiated at the World Trade Organisation. The Package represented agreement on what had been unsuccessfully sought for in Cancun and provided a framework for ongoing negotiations. The protracted negotiations had strengthened the unity of the G20, and it was critical for South Africa to engage in the process further. There was a need for a full time South African representative in Geneva as South Africa had been identified as a key player. The Committee expressed particular concern over the decision to open markets as they felt that the United States and European Union were not doing this.

The Department also briefed the Committee on Southern African Customs Union (SACU) developments. The new SACU Agreement was in force, and the Secretariat had been established. Numerous workshops had been held with the other SACU Members, and the challenges identified included building democratic institutions and industrialisation and economic development. The Committee suggested opening up the cross border movement of labour as well, and expressed interest in a possible expansion of the Union.

MINUTES
Multilateral Trade Negotiations Briefing
Mr I Sharma (Chief Director: International Trade and Economic Development, Department of Trade and Industry) explained that it had been imperative to get the Doha negotiations back on track after the failure in Cancun in September 2003. In Geneva, consultations among World Trade Organisation (WTO) members had identified key issues that required resolution. These included agriculture, industrial tariffs, cotton and the Singapore issues (investment, competition, transparency in government procurement and trade facilitation). The lead up to the adoption of the "July Package" illustrated growing strength and cohesion of the G20 political unity. The decision to adopt the package on 1 August 2004 thus signalled a significant advance in the negotiating process.

The July Package fundamentally provided a framework for ongoing negotiations and ensured that the negotiation process was continued on a more focused agenda. It sought to ensure that the negotiation process could continue without compromising the Doha ambition, mandate and objectives. The Package addressed five issues considered to be immediate obstacles to negotiations, namely development issues, agriculture, cotton, non-agricultural market access (NAMA) or industrial tariffs and trade facilitation. It marked agreement on the framework for ongoing negotiations.

The General Council recommitted its members to fulfilling the development dimension of the Doha Development Agreement (DDA), which placed the needs and interests of developing and less developed countries at the heart of the Doha work programme. There was growing co-operation between the G20 and Africa Group countries on development issues and South Africa was asked to act as the facilitator of the so-called "weak and vulnerable developing country" issue. In terms of agriculture, which had been a key point in the collapse of Cancun, for the first time, member governments agreed to abolish all forms of agriculture export subsidies by a certain date. The commitment to getting rid of subsidies marked a great step forward.

In Doha, Ministers had agreed that negotiations should aim at reducing tariffs as well as non-tariff barriers on products of export interest to developing countries. Two issues constrained progress at the July meeting, however, the reluctance of members to negotiate on NAMA without clarity on progress in agriculture and disagreement on what should constitute the basis of the negotiations. Members reaffirmed that negotiations on NAMA should continue with the original aims. The outcome of negotiations on trade facilitation signalled two important issues. The European Union (EU) and other proponents for negotiations on Singapore issues agreed to drop the issues from the negotiations in order to concentrate on trade facilitations. Consensus to launch negotiation on trade facilitation required an agreement on the framework within which negotiations would proceed.

The key challenges faced by negotiators included the delayed re-engagement in the WTO owing to a combination of Presidential elections in the United States and the appointment of new commissioners in the EU in the second half of 2004. The central role played by the Five Interested Parties (FIPS) group, comprising of the US, EU, Australia, Brazil and India, in setting out the final terms of agreement in agriculture was controversial. Africa's challenges were well documented and characterised by slow economic growth and development.

Difficult and complex negotiations were still ahead and the July Package only marked agreement on the framework for ongoing negotiations. Much work was required to define the modalities to define the final outcome of the process. South Africa would need to continue building its capacity to participate effectively in negotiations and forge strong alliances with the G20 and the Africa and Cairns Groups. The harmonisation of the Africa Group was a positive spin off of the protracted negotiations.

Discussion
Mr T Setona (ANC, Free State) asked how the July Package could be described qualitatively and quantitatively as a success.

Mr Sharma replied that the fact that there was agreement on some areas showed some movement. The G20 had arisen from the issue of agriculture and for the first time ever in multilateral agreements there was a new power bloc. The G77 was too big and was not able to stand strong, but the G20 was a watershed moment as shown by the shaping of the July Package. The quantitative measure would only be obvious once the agreements had been signed. Agriculture had only been part of the mainstream negotiations for the last twenty years and progress had been slow.

Mr Setona asked the development implications for the less developed countries of the abolition of export subsidies.

Mr Sharma replied that the impact would be good, as most of those countries did not have subsidies, so the playing fields were being levelled. The area of agriculture was one for developing countries to trade their way. The EU had committed to putting a ceiling on the common agriculture policy going into 2013. The issue would come to an end, but it was a timeline issue. South Africa would prefer it to end sooner rather than later, and the pressure was too great for the bigger countries to continue with export subsidies.

Mr Setona asked what was meant by the technical negotiating capacity being a challenge for South Africa and asked what mechanisms the Department was putting in place to address this. Were the WTO negotiations government-to-government negotiations, or was the Department drawing on private sector organisations?

Mr Sharma replied that it had to do with the people available and their experience. Certainly skills could only come from being immersed in the issue and gaining understanding over time. As a young democracy, South Africa lacked capacity. Through the Southern African Customs Union (SACU), all negotiations were done as a collective, which gave South Africa an opportunity to share experience and leverage its SACU colleagues.

Mr D Gamede (ANC, KwaZulu-Natal) asked to what the Department would attribute the failures in Cancun, and whether they were able to identify these and take the challenge to move forward.

Mr Sharma replied that, from a South African perspective as expressed by Minister Erwin on his return from Cancun, the developed world had held the developing world to ransom. The issues on the table had made the agenda too heavy, owing to the insistence of certain countries that new issues be added. It was impossible to achieve a balance within the timeframe. In the July negotiations, for example, the Singapore issues had been excluded. The inability of the developed countries to break the alliance of the G20 had also contributed to the failure.

Mr J Sibiya (ANC, Limpopo) said it was a sticking issue that the G8 insisted that developing countries should open their markets while the G8 had protectionist tendencies. What was the Department's view on the thought that the developing countries should put up a united front?

Mr Sharma replied that the protectionist issue would go away over time. A lot of details were still to be negotiated, and it was fundamentally a debate between the US and the EU. The G20 was only powerful to a point. It was a matter of who US or EU would change first, and the domestic imperatives of the countries would dictate this.

Mr K Sinclair (NNP, Northern Cape) said that he felt that the approach to agricultural exports was problematic, particularly in his province. It was not possible to compete when the playing fields were not level. The Department had indicated that all forms of agricultural export subsidies were to be abolished by a specific date, and he asked what this date was.

Mr Sharma replied that the date was to be negotiated. It had been a contentious issue, but the negotiations had moved on. Agreement had been reached on the notion of eliminating the subsidies, and by May or June 2005, more commitments would be considered. South Africa would continue to lobby the EU and the US, and continue to engage with them as the issues were also coming up in bilaterals. South Africa had a responsibility in the region, within the Africa Group, the G20 and the Cairns Group, and was looking to intensify engagement in Geneva. The role played in Geneva was quite important.

Mr Setona remarked that the British Government had established the Blair Commission on African Development, and the US had similar legislation. He asked if there was any link between these initiatives and the negotiations, and whether there were any opportunities for South Africa in particular through these two initiatives.

Mr Sharma replied that there were a number of international initiatives for interaction with Africa, and each was trying to advance its own particular interest in terms of the subcontinent. In the US, for example, there was a range of duty-free and quota free products, but reciprocity was required. The US had already indicated that it would like 20% of its energy reserves to come from Africa. Japan and China were investing in infrastructure. The WTO negotiations were to decide on the rules, and this was where the problem arose. Countries often tried to achieve bilaterally what they were unable to achieve multilaterally, so bilateral agreements could undermine WTO negotiations. The only hope the smaller countries had was to group together, and that could only be done in the multilateral sphere.

Mr Sibiya said that he had heard that the WTO had issued a ruling against the US for breaking the rules and that on the basis of this, the EU might consider sanctions. If this was true, what was the possibility that they would and what implications did this have for South Africa.

Mr Sharma replied that there would be no impact at all. The WTO had a rules based system, and could take a country to task if it broke the rules and then issue a ruling. In this particular case, the US had had a tax incentive for exporters. In the spirit of free trade under the WTO rules, the EU had said that this was unfair and the WTO had ruled that it was illegal. It had then assessed damages based on the volume of export and decided on sanctions of $4 billion, which meant that the EU could raise the price of US exports to this extent when they entered Europe. It was a common occurrence. WTO rulings were binding, hence the importance of the WTO, as the rules-based system protected developing countries. Findings took time, unfortunately.

Mr Sinclair referred to the suggestion that South Africa should establish a full time dedicated representative to the WTO. Should this be lobbied for?

Mr Sharma said this was an important step in our growth in this area. South Africa's international role had raised the level of the game, and there was now a need to start building capacity in Geneva. South Africa had joined the WTO to forward its own objectives and now felt it could contribute to shape the rules. A permanent representative was now overdue.

SACU Developments Briefing
Mr Sharma said that the new SACU Agreement had come into force on 15 July 2004. SACU institutions had been established, the SACU Headquarters Agreement with Namibia had been finalised and the SACU Secretariat had been established in Windhoek, headed by Ms C Moremi of Botswana.

SACU was the oldest customs union in the world, established in 1910. Its objectives included the facilitation of cross-border movement of goods, the creation of effective, transparent and democratic institutions, the promotion of fair competition in the Common Customs Area and the enhancement of economic development, diversification, industrialisation and competitiveness. It was critically important to promote the integration of SACU into the global economy and to develop common policies on industrial development, competition, agriculture, unfair trade practices and dispute settlement.

The challenges faced in the building of democratic institutions included the establishment of SACU institutions, such as a Tariff Board, National Bodies and a Tribunal, and building capacity in Botswana, Lesotho, Namibia and Swaziland (BLNS) on tariff applications. In terms of industrialisation and economic development, less focus was required on revenue and more on economic development and integration. Common industrial, competition and development policies had to be developed, but this was not an insurmountable challenge as South Africa had already done the work and it required harmonisation.

Member states had recognised that some objectives were possible in the medium term and others in the long term, and Ministers of Trade were now members of Council. It had been agreed that South Africa would manage the Common Revenue Pool (CRP) until July 2006, and the Council would decide on further options for CRP management. A new revenue sharing formula was in force and would be reviewed in three years. Ongoing workshops were held with member states, such as the workshop on Competition Policy and Unfair Trade Practices held in August 2004. SACU was negotiating Free Trade Agreements as a single body, with South Africa as chief negotiator.

Standing agenda items included taxation harmonisation and single border crossings and it had been agreed that the Secretariat would have three directorates: Corporate Services, Trade Facilitation and Policy Development. Recruitment of staff would proceed upon completion of job descriptions and conditions of service.

Discussion
Mr Sibiya expressed concern that SACU was still looking at the cross border movement of goods as he had thought this was an underlying base of the Union. He asked when the cross border movement of labour would be addressed as this would underline the changing philosophy.

Mr Sharma replied that the presentation had just shown some of the agreements. The movement of labour was an issue that would happen in sequence, as an enabling environment with job possibilities would first have to be in place.

Mr Sibiya said that he knew the Rand had been the roving currency for the institution before 1994. He asked if this was still the case and, if so, whether it was time to look at the concept of a new currency, not of South African origin.

Mr Sharma replied that the Rand could be used in the Common Monetary Area, except in Botswana. A more neutral currency was not a practical reality but was a NEPAD vision, as an African currency for the continent. Currency was a very personal issue as could be seen from debates in the EU.

Mr Sibiya found it interesting that agriculture was to be co-ordinated and asked why there was no discussion on the co-ordination of export polices. He suggested that competitiveness should be eliminated.

Mr Setona remarked that South Africa occupied the highest place of the countries in SACU and asked whether the Department felt that South Africa had a comprehensive industrial policy and if so, to what extent it had been adopted. What was the South Africa position on growth potential?

Mr Sharma replied that there was co-ordination of a lot of sectors, including agriculture. The intention was for industries to position themselves in SACU, not just in South Africa. South Africa needed to find its own place in the value chain. Ten years ago the economy had been dependent on mining, which now accounted for only 10%. It was not sustainable to concentrate development in one area and the geographic spread of industrialisation was important as it helped to alleviate the burden of industrialisation.

Mr Sinclair said that in his province, as in the whole of South Africa, there was a lot of agricultural activity, and a large number of abattoirs in particular. There appeared to be a problem at the moment that people were buying lamb in Namibia, slaughtering it there and importing it to South Africa. When it crossed the border, there was a tax benefit for Namibian abattoir owners, rendering it cheaper than South African lamb. Was the Department aware of this? Mr Sharma asked him to forward details to the Department.

Mr Setona said that he understood that the area was emerging from the era of colonialism and asked whether it was possible to expand SACU to include other countries. He referred particularly to the plethora of trade agreements and asked what relationship SACU had with other multilateral trade agreements.

Mr Sharma replied that SACU consisted of five countries because, when it was established in 1910, the five were bound by a common external tariff for duties. All countries were members of SADC. There were discussions with Mozambique, but any country joining SACU would have to bring its customs tariff in line.

Mr Setona said that it was sometimes difficult to interpret laws and suggested engaging to look at cross border trade issues. He referred to the taxi feud between Lesotho and South Africa and said he was unsure of the extent to which the Department had mechanisms to monitor provincial compliance with agreements.

Mr Setona commented that it was a challenge for the Committee to identify issues with specific impact on Member's own provinces and he called on the Department to address issues and to check, that policies were consistent with what was happening on the ground.

Mr Sharma agreed that this was the way forward and asked the Committee to forward any questions or discrepancies at any time.

Mr Gamede asked why the SACU agreement did not involve all the SADC countries.

Mr Sharma replied that SACU was part of SADC, but that SADC was a regional grouping, of which there were several in Africa. Over time, it was likely that all countries would determine a common framework under NEPAD. It was also important to remember that Africa was not without international interference, and the challenge was to work in the Southern African region.

Mr Setona referred to the suggestion that Lesotho be the hub of the textile industry and asked what possibilities there were for the emerging sectors to have access to this market.

Mr Sharma replied that this was a critical challenge. Established industries had no problems. A lot of time had been spent on articulating the tenets of broad-based black empowerment and it was imperative that foreign partners understood its importance. One way for local entrepreneurs to access the market was through joint ventures. Information was available, but it was a challenge to get it to entrepreneurs. It was available on the Internet, and the Department had a toll free call centre to give more access to information.

Mr Setona said that it was about empowering communities and information was critical. Members needed relevant information to take back to their communities and he suggested the Committee organise a workshop to redefine its oversight role, as it was not just about statistics. When the Report on the NCOP visit to KwaZulu-Natal was finalised, the Committee would be able to engage the Department on specifics.

The meeting was adjourned.