Trade Negotiations Insights • Volume 8 • Number 6 • August 2009

The EC-SADC EPA: The Moment of Truth for Regional Integration

by Aurelie Walker

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Botswana, Lesotho, and Swaziland have broken with other Southern African Customs Union (SACU) members South Africa and Namibia by signing an interim Economic Partnership Agreement (EPA) with the EU. The signing, which took place amidst great controversy on 4 June in Brussels, ensures provisional application of the agreement by all parties.

In signing, Botswana, Lesotho, and Swaziland have cemented their commitment to engage with the EU in negotiations on trade in services and investment, government procurement, and competition toward a ‘full’ EPA while addressing the outstanding issues pertaining to trade in goods. Namibia initialled the interim agreement in December 2007 and continues to trade under the unilaterally applied agreement, whilst South Africa trades with the EU under the Trade and Development Cooperation Agreement (TDCA) concluded in 1999. Southern African Development Community (SADC) member country Mozambique has also signed the interim EPA whilst Angola, the last of the seven SADC countries negotiating an agreement, continues trading with the EU under the Everything But Arms initiative.

The signing of the interim EPA by three out of the five SACU members threatens the functioning and, possibly, the very existence of the SACU (see Draper and Khumalo on the future of SACU in this issue). The Customs Union has a Common External Tariff (CET) and therefore does not allow any single SACU member to negotiate a trade agreement bilaterally with third parties. The SACU-EPA ‘three’ were consequently faced with a stark choice: work to reach a consensus within the Union to respect its internal rules and sign the interim EPA as a bloc, or prioritise trade with the EU and sign immediately as individual countries.

Technical Considerations

For its part, Botswana says it needs the interim EPA to maintain the preferential duty free access to the EU market for its exports. “We have agreed with the Europeans to sign and notify it to the WTO to have Duty Free, Quota Free access and confirmation from the WTO that trade under the EPA is actually WTO compliant,” Daniel Moroka, Botswana’s Minister of Trade and Industry, said in an interview with TNI. “The decision to get into an interim EPA was simply to ensure that there would be uninterrupted flows from the ACP countries into the European market.” The Minister indicated that Botswana also has interests in the negotiations beyond trade in goods. “We have decided that we will negotiate other aspects of the EPA - services, investments, and outstanding issues - in parallel.”

A similar rationale applies to Swaziland and least developed country Lesotho but the choice to move ahead with the EPA has greater implications. Both countries have seen the advantages of concluding a reciprocal trade agreement with the EC in terms of increasing investment and productive capacity at home. This is particularly because of the rules of origin for clothing, textiles, and sugar that are more favourable in the interim EPA than what they have as alternative trade arrangements[1]. Of great concern is that 70 percent of Swaziland’s and 60 percent of Lesotho’s state revenue is earned through the SACU revenue-sharing arrangement which signing the interim EPA threatens to destroy. Economists in the region estimate that Lesotho could lose up to 25 percent of its gross domestic product overnight, and Swaziland could see a 20 percent decline. This contraction would have a devastating effect on growth, employment, and poverty.[2]

Namibia initialled the interim EPA to maintain its preferential access to the EU, but is not yet ready to sign it. Namibian Trade and Industry Minister Hage Geingob has cited, among other obstacles to concluding the trade deal, the EC’s refusal to amend the interim EPA text or add an annex to the existing one[3] to provide adequate legally binding assurance that the agreements reached during the ground-breaking Swakopmund negotiating session in March will be respected[4]. “It is not that we don’t want to sign,” Geingob affirmed during an interview with The Namibian. “Why else would we have provisionally initialled the interim EPA? We are genuinely trying. We’ll sign when it’s right.[5]” This position, shared by Angola and South Africa, has caused a deadlock in the negotiations. According to the EC, the amendment of the interim EPA text was not technically feasible in the complex decision making structures of the European institutions but the EC is committed to amending the text in the full EPA.

Angola and Namibia are showing solidarity with South Africa in outstanding issues of economic and political significance such as the Most Favoured Nation (MFN) clause and the definition of the parties to the agreement. Including an MFN clause is especially contentious in the SADC EPA because the TDCA does not oblige South Africa to offer the EC the better treatment that it might offer third parties in other trade agreements. Moreover, South Africa has clear offensive interests in advanced developing economies which, in the negotiation process, may require them to make greater trade-offs. South Africa does not want to see this provision imported into the EPA. The EC has maintained that in view of its 100 percent duty free, quota free market access offer, it has the right to receive improved treatment from any ACP country if it is given in the future to large third countries.

Political considerations

The EU-SADC EPA actually offers the potential to remove differences between the trade regime offered to South Africa (TDCA) and the other SACU members that have existed for many years, thus bringing the region closer to a single trade regime with the EU than ever before. Out of several thousand product lines, only 53 will be covered by different tariffs, and work to align the rules of origin in the TDCA and the EPA has started. The SADC EPA, theoretically is conducive to regional integration and economic development.[6]

Nevertheless, the EC and South Africa have been at loggerheads throughout the negotiation process, with both sides responsible for walking away from the negotiating table at critical moments. Both sides have accused the other of bullying the smaller SADC states and are blaming each other for the possible disintegration of SACU.

This is difficult to comprehend from a technical trade perspective, considering that the outstanding issues of the EPAs are not insurmountable. Since Catherine Ashton replaced Peter Mandelson as EC Trade Commissioner, progress has been made on the ‘contentious’ issues of the negotiations, and the parties are not far from reaching an agreement. In reality, the timing more than the signing is the problem in the region. The artificial deadline set to sign the interim EPA was agreed by both parties, but the imperative to sign now is not clear. Spectators are questioning the EC’s impatience to sign a WTO compatible deal at any cost. At least, timing should be taken seriously now that obligations in the full EPA will extend beyond goods to trade related issues where rules have not yet been agreed in the region. South African Trade Minister Rob Davies acknowledged this could have an impact on the future of regional integration.

But ascribing blame for the disintegration of SACU to the EU, South Africa, Namibia or those countries that have signed the EPA, merely skims the surface of complex historical problems within SACU that stem from deep-rooted political tensions in the region.

Not the global economic crisis, nor trade negotiations with third countries, nor a continental call for regional coherence has prompted an alignment of national interests in the region. The political rationale for creating SACU in 1910, when it was an agreement between the then Union of South Africa and the High Commission Territories of Bechuanaland, Basutoland, and Swaziland has changed - but the economies are now inextricably linked. This crisis might yet push countries to design a regional arrangement that incorporates the contemporary interests of this diverse group, rather than simply watch the Union collapse. But for now, the EPA could be viewed as a convenient scapegoat at a time when the region would prefer not to air its dirty laundry in public.

Author

Aurelie Walker is programme officer in the Economic and Trade Cooperation programme at ECDPM.

[1] Lesotho has the Everything But Arms initiative and Swaziland has Generalised System of Preferences.

[2] Mathabo Le Roux, “Southern Africa: Threat of Regional Upheaval If SA Torpedoes Customs Union” 8 June 2009 http://allafrica.com/

[3] Jo-Maré Duddy, “EU hits back at trade impasse with Namibia“, The Namibian 29 June 2009

[4] Examples include agreements on export taxes, infant industry protection, food security, and the free circulation of goods.

[5] Jo-Maré Duddy, “Namibia: Geingob Lays Into EU“, The Namibian 1 June 2009

[6] EPA news flash, European Commission, 17 June 2009

One response to “The EC-SADC EPA: The Moment of Truth for Regional Integration”

MALEBOGO PAAKANE 6th October 2010 at 13:06
My comment or maybe question is do we have any conclusion on the matter and if so what about importing goods from EU. Are they any advantages? As most EU goods have set standards and comparing them to other markets the quality and consistence of goods is so much better.