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Tuesday 22 January 2019
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Implementing the SADC EPA – challenges and impact

blue container ship unloading

blue container ship unloading

Negotiations between the European Union (EU) and the group of Southern Africa Development Community (SADC) EPA countries (comprising Southern Africa Customs Union (SACU) members – South Africa, the BLNS (Botswana; Lesotho; Namibia; Swaziland), Mozambique and Angola), were concluded in 2014 and the agreement was signed between the EU and SADC EPA countries, excluding Angola on 10 June 2016.
As of 10 October 2016, the SADC EPA is being provisionally applied (pending ratification by all EU Member States) between the EU and SACU. Mozambique is expected to ratify in 2017. It is important to note that the ratification process in the EU can take a long time. Further complications may arise when the UK formally notifies its intention to exit the EU (BREXIT), given its importance as a trading partner to the SADC EPA states, more especially for South Africa’s wine, table grapes and citrus products as well as Botswana and Namibia’s beef which will be affected if current preferences are lost. The process of EPA negotiations was complex and several stumbling blocks had to be overcome; while divergent needs (also among the SADC states involved) had to be accommodated. Furthermore since the initial meetings in 2004, things have changed and the global environment is no longer the same, including new EU Membership. Amongst the sticking points were:

* The EC originally insisted on the inclusion of a “regional MFN clause”, which would have resulted in the automatic extension of MFN treatment to the EU regarding any better treatment offered in future trade agreements with third parties.

Solution: This benefit will now be limited to new trade agreements with major economies (Brazil, China, India and the USA). New South-South trading arrangements such as the Tripartite FTA and the proposed Continental FTA for Africa will not be affected. Quantitative restrictions on imports will be permissible as long as they are compatible with WTO obligations.
* Export taxes were a major concern of the SADC states; since their local industrialization plans might be affected.

Solution: It has been agreed to allow export taxes on a limited number of exports, for a period of 12 years and at predetermined rates.

* Agricultural safeguards Activating a safeguard requires a lengthy process of consultation and analysis, which might be unsuitable in some cases, particularly in agriculture.

Solution: Safeguards (no less than 5) have been included in the SADC EPA and are quite generous, with more flexible activation clauses than those found in the WTO Agreement, thus will shield local producers from sudden inflows of larger quantities of EU goods; while the EU has agreed to eliminate subsidies on several exported goods. For agricultural goods a special safeguard has been adopted. A temporary safeguard mechanism was also created for sensitive products from the smaller economies in SACU. Namibia secured a transparent and predictable framework for the exports of fish products from its Exclusive Economic Zone.

* Trade in Services – South Africa was and is not keen to negotiate. However other countries were keen to open their services markets.

Solution: The Parties (SACU members, Mozambique and perhaps Angola- even if it has not signed the trade in goods agreement) have agreed to continue negotiations with the EC on a more comprehensive deal covering trade in services, trade related matters such as competition, investment and possibly procurement.
Now that negotiations are complete and the EPA is being provisionally applied (pending full EU ratification), the road ahead is not an easy one. Firstly, signing an Agreement does not imply market access.
There remain a number of challenges for the SADC EPA states to fully benefit from the EPA beyond existing market access (i.e. their interests in beef, fisheries and sugar) that was under threat if the negotiations had fell through. Furthermore, determining the impact of the EPA will require monitoring.
These were some of the issues discussed at a recently concluded workshop organised by the German Development Cooperation “Anchoring Sustainability in the Framework of EU Economic Partnership Agreements” which aimed at guiding the formulation of the draft concept for a project on the implementation and monitoring of Economic Partnership Agreements (EPAs) in cooperation with partners from the SADC region. Tralac participated at the workshop and highlighted some challenges that should be anticipated.

These include:
* South Africa’s concern around services trade negotiations – “They are concerned that the ongoing negotiations on services and investment between the EC and some members of the SADC EPA Group, if concluded, will create a new generation of trade policy division in SADC and SACU,” according to Minister Rob Davies

* Standards and Quality Compliance and Assurance – EU requirements are high and costly to meet. Furthermore for SADC it is not a question of quality but more of certification. And here, the concern is that most SMEs who need to benefit from EPA may be excluded in short – medium term, which provides a role for trade facilitation.

* Trade Remedies – e.g. RSA-EU poultry dispute: RSA/SACU response (implementation of safeguard) in terms of the TDCA – EU not responding well to this.

* Most benefits for SADC EPA states will depend on their ability to diversify and produce value added manufactured products.

* SADC’s regional integration agenda – SADC will have to tend to important issues around intra-regional trade and deeper integration; this may shift focus on EU as a market of choice for new products given the impetus to promote regional value chain in SADC and Africa broadly.
Important to note here is that South Africa is focusing on Africa to boost its trade and to this effect created the Trade Invest Africa Initiative in 2016 which is mandated to contribute to increasing the levels of intra-Africa trade by facilitating South Africa’s exports of value-added goods and services, while creating sourcing relationships for imports from other African markets:
Therefore the question then is how can the SADC EPA benefit the member states in the wake of the fact that the EU benefits most from new trade created as a result of this free trade agreement (FTA)? Analysis undertaken by the author in 2016 revealed that with the SADC EPA:
* South Africa benefits from the EU opening up its market, with almost all trade created by the EPA being the result of increased imports from South Africa into the EU;

* Total trade effect or increase in exports from the SADC EPA to the EU amounts to just over US$ 165 million, which is relatively small with respect to total EU imports; * Total trade effect for the EU when SADC EPA countries fully liberalise their markets to EU products amounts to about US$ 3.6 billion in trade with the SADC EPA state, 21 times more than the reciprocal trade effect for SADC EPA exports into the EU;

* As can be expected, the main increases come from trade with South Africa due to its dominant market size. Trade with South Africa will result in a total trade effect of US$ 3.2 billion, about 78% is new trade, while the remainder is trade diverted as a result of the FTA.
There is also an increase in trade with Mozambique resulting in a total trade effect of about US$270 million of which almost 70% is new trade.
This picture shows that any benefits will not accrue from existing trade patterns but SADC EPA states especially Mozambique and the BLNS need to need to find the SADC EPAs “unique offer” in order to fully benefit from the agreement.
A starting point will be to look at their national development strategies and how they fit into the regional value chains agenda of SADC as envisioned in the revised RISDP, which sets out potential value chains to be developed and promoted in the region.
Next step would be looking at the EU as a potential target market for these identified sectors and start building capacity to export to the EU given the simplified rules of origin requirements for access to the EU under the EPA.
Important to note is that developing and promoting regional value chains is not the panacea for increased trade with the EU and as such concerted efforts should be made to ensure the competitiveness of domestic suppliers, through elimination of barriers to entry into existing export sectors, support to SMEs, government procurement, market intelligence and capacity building of both government, private and civil society stakeholders.

By Taku Fundira, tralac Associate




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